The oil and gas industry is undergoing a paradigm shift as it grapples with the energy transition from fossil fuels to renewables. In 2020, fossil fuels accounted for 83% of global energy, but this is predicted to drop to between 50 and 55% by 2050. The United States is seeing a decline in oil demand, because of the rise of electric vehicles and regulatory efforts to curb greenhouse gas emissions. Despite this, global oil demand is expected to peak in the late 2020s, with oil’s share of world energy demand projected to decrease from 29% in 2018 to 16% by 2050.
In 2020, fossil fuels accounted for 83% of global energy, but this is predicted to drop to between 50 and 55% by 2050. The United States is seeing a decline in oil demand, because of the rise of electric vehicles and regulatory efforts to curb greenhouse gas emissions. Despite this, global oil demand is expected to peak in the late 2020s, with oil’s share of world energy demand projected to decrease from 29% in 2018 to 16% by 2050.
Oil prices recovered post-pandemic, hitting over $75/barrel, which is a significant increase from the 2020 average of $40/barrel. However, companies are cautious, focusing on rebuilding balance sheets and reducing capital expenditures. Natural gas, including LNG, is expected to see an increase in demand until the late 2030s, with its global energy demand share projected to rise from 26% in 2018 to 29% by 2050. US LNG exports have grown substantially, with 13% of gas extracted being exported in 2020. The demand for LNG is forecast to double by 2040, with China’s carbon neutrality goal by 2060 playing a significant role.
Investment in renewable energy
Oil and gas companies are investing in renewable energy as part of their decarbonisation efforts. A 2020 DNV survey showed that 57% of industry professionals reported an increase in renewable energy investments. BP aims for 50 GW of renewable generating capacity by 2030, planning to cut oil and gas production by 40%. European oil giants are leading the transition, allocating an average of 16,1% of their capital expenditures to renewable energy, compared to 2,6% by US companies like Chevron and ExxonMobil.
Electrification
Electrification is gaining traction in the oil and gas industry, particularly in hydraulic fracturing, offshore rigs and subsea operations. E-frac fleets powered by gas turbines are more efficient and have a smaller environmental footprint than traditional diesel-powered units. Offshore operations are moving towards electrification to reduce emissions and improve efficiency. Subsea operations benefit from all-electric technologies, offering simpler control systems and reduced topside costs. Midstream and downstream sectors are also exploring electrification to enhance efficiency and reduce emissions.
Cost reduction
Cost reduction becomes a priority when oil prices fall below the break-even price. The industry has experienced two price crashes in the last decade, leading to asset sales, layoffs and operational efficiencies. US shale drilling, for example, saw a 20% reduction in average break-even costs. Electrification and operational optimisations are among the strategies employed to lower costs.
Technology trends
Digitalisation is transforming the industry, with a focus on analytics, AI, automation, IoT, and cloud computing. Cybersecurity is critical to protect the increasingly digitised infrastructure. Big data and analytics are leveraged to improve decision making and efficiency. Remote operations, accelerated by the pandemic, are becoming more common, with companies like Baker Hughes reporting a significant portion of their drilling services being executed remotely.
Conclusion
Between 2015 and 2021, the oil and gas industry faced significant disruptions, but emerged stronger financially and operationally. As the industry navigates the global energy transformation, companies face the challenge of adapting to declining demand for fossil fuels, while investing in and transitioning to renewable energy sources. The industry’s future depends on balancing current profitability with sustainable long-term strategies.
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