Natural gas projects will receive a significant investment boost as it becomes the world’s primary energy source in 2026 and account for a quarter of the world’s energy by mid-century, according to DNV GL’s 2018 Energy Transition Outlook.
Hans Kristian Danielsen, vice president for DNV GL Oil & Gas, called this a good news story for gas. “We foresee quite an early peak for oil demand, as early as 2023, because we expect a higher uptake in electric vehicles than other analyses,” he said. “At the same time, we predict a higher gas contribution with growth in gas demand until 2035 before that peaks as well.”
The outlook, released Sept. 10, predicts that global upstream gas capex will increase from $960 billion in 2015 to a peak of $1.13 trillion in 2025. Upstream gas operating expenditure is set to rise from $448 billion in 2015 to $582 billion in 2035 when operational spending will be at its highest.
The uncertain horizon for peak oil and gas could make funding of projects risky, but Danielsen is clear that new E&P will be required beyond the peak oil and gas timeframes.
“What is clear is that the depletion of available oil and gas will be faster than the reduction in demand so there will still be a requirement for new oil resources coming online,” Danielsen added. “New investment is needed, and they will still be needed beyond the peak oil that we predict. However, large projects with a very long return on investment time will be exposed to higher financial risk, and we expect investors [to] favor projects that provide a shorter time for return on investment.”
Long after peak demand new resources will be required to continue replacing depleting reserves. These will likely be developed from smaller, more technically challenging reservoirs, with shorter lifespans, lower break-even costs and reduced social impact compared to those currently in operation, according to the outlook. If the scenario pans out as DNV GL predict, then the higher-risk plays such as Arctic and ultra-deepwater will have uncertain futures.
“That scenario is exactly what we are foreseeing,” Danielsen added.
This growth in demand for gas will dramatically change the landscape for the sector with conventional gas set to decline from about2030 with unconventional onshore gas expected to rise to a peak in 2040, according to the outlook.
Conventional oil production will continue to play an essential role in the global energy mix for decades to come. Conventional onshore oil production will decline by 1.9% per year on average until 2050 but will still account for about 55% of all oil production by then, the outlook showed. Unconventional onshore oil production will almost double to about 17 million barrels per day by 2033, by which time it will have a 22% share of global crude oil production.
“Much of the growth will come from traditional regions such as Russia and Australia with the main growth coming from unconventional in the US,” Danielsen added. “There is a bit more of a question mark for other unconventional sources although you could foresee growth from China. Moreover, you cannot discount the large developments in the Mediterranean and Middle East.
“We expect that the future will see a faster, leaner and cleaner oil and gas industry,” he said. “It is time for the oil and gas industry to invest in the digital technologies that will enable quicker and more agile exploration and production, and the smooth integration of less carbon-intensive gases into the energy system.”
Part of the greener future is about reducing the carbon footprint of oil and gas production.
“The footprint of oil and gas production will be critical in reducing our emissions, not just oil production but with gas becoming a larger part of the source, reducing the greenhouse gas footprint of gas production is critical,” Danielsen said. “That is not only CO2 but also the methane releases. These can be very challenging from some shale gas operations.”
The outlook reaffirms that oil and gas have a vital role to play in the energy transition. It also forecasts that global warming will likely reach 2.6 C above pre-industrial levels in 2050. This figure is well above the 2 C target set out by the COP 21 Paris Agreement on climate change.
“Our message is that we are not going to achieve the target,” Danielsen said. “If we are going to reach the target, we will need CCS [carbon capture and storage]. If you go back 15 years, it was about capturing the carbon from combustion or burned fuel. I think what we see now is more solutions where you talk about taking the carbon out before you burn the fuel—extracting CO2 from gas and making it hydrogen and in that way more efficiently building a clean energy supply chain.”
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