oil and gas industry outlook 2018 pdf

Oil And Gas Industry Outlook 2018 Pdf

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Transfer pricing in the oil and gas sector

As the third decade of 21st century begins, the oil and gas industry faces opposition from a public greatly concerned with the environmental impact of fossil fuels, ever-more skeptical shareholders, and challenges from policy makers seeking to simultaneously meet decarbonization goals and expected oil and gas demand. Amidst a global energy transition, the demand, financial, and social future of oil and gas companies is increasingly in question.

However, even with these obstacles, oil and gas remain an important part of the energy mix, especially in developing regions. In the United States, India, and China—the three largest greenhouse gas emitters—natural gas in particular has the potential to remain an integral component of the low carbon energy transition for decades to come, depending on the policy mechanisms and technologies in place.

In addition to disincentives, many governments are encouraging the use of substitute technology and fuel, especially renewable energy. A third method of decreasing carbon use is the organization of circular economies, in which materials are reused or recycled instead of disposed of at the end of their service life. Investors are also becoming a strategic driver of decarbonization action, growing increasingly attuned to the demand horizon for hydrocarbons and shifting attention to the environmental impact of oil and gas production through Environment Social Governance ESG -focused investing.

Stranded asset risk is a significant concern for shareholders as the future energy mix takes shape. Oil and gas companies are responding by looking at where and how they do business and confronting a rethink of business models in a decarbonizing world. These companies have a range of tools when it comes to engaging with decarbonization efforts in ways which allow their participation in the decarbonizing economy.

Where energy demand is growing rapidly, oil and gas companies can endeavor to support coal-to-gas switching and investing in infrastructure that enables electrification to meet end user demand and support lower GHG upstream operations. Companies can also focus on using renewables and new technologies not just as a hedge against demand risk or to decarbonize their production, but to leverage their expertise with supply chains and market development to support low carbon energy deployment in the energy transition on-the-whole.

How oil and gas companies choose to engage with the low carbon energy transition may determine how they are viewed by shareholders, governments, and the general public. In order for oil and gas companies to be successful in their efforts—not only to survive the low carbon energy transition—but also to support and lead it, this report recommends that they take the following steps:. Climate change has taken on new urgency as extreme weather becomes more frequent and captures global headlines, increasingly dire reports are published in multiple sources, and international protests are beginning to seize the collective imagination.

In this context, a wide range of political and environmental leaders have become wary of the future role of oil and gas companies and are now advocating for the complete removal of fossil fuels from the energy system. The oil and gas industry is under increasing pressure from governments, investors, and the public to support the decarbonization of the energy system.

While lower oil and gas prices since have proved to be the major headwind to sector performance, the sector outlook is also increasingly clouded by the prospect of policies seeking to decarbonize or lower emissions in the fuel and power sectors. Such policies have caused an increasing number of investors to contemplate the growing possibility of a ceiling for future hydrocarbon demand, absent viable emissions mitigation.

But such pressure does not necessarily imply that there is no future for oil and gas. Rather, continued expected growth in global energy demand—and its potential to outpace the deployment of alternative, non-fossil sources of energy—presents a dual challenge for oil and gas producing companies. Companies must manage a range of policy, investor, and societal pressures to move to a low-carbon energy system while still meeting expected global oil and gas demand over the long term.

To be clear, this report is not making an argument for the status quo. Entering the COP25 discussions in Madrid, Spain, the United Nations UN Environmental Program has documented that the world is not on track to hit the goal of holding the increase in global temperature above pre-industrial levels to 1. The energy transition raises existential questions for the oil and gas industry. How can hydrocarbons companies manage a shifting strategic landscape while providing returns to shareholders—and not only survive but also find a way to play a leading role in the decarbonization story?

To navigate this challenge, the oil and gas sector is now responding in several ways:. There are multiple drivers of this mobilization, and they include pressure from the public, regulators, shareholders, and even employees. The oil and gas sector also sees the potential for substantial new business opportunities, from coal-to-gas fuel switching to advanced biofuels to offshore wind.

It is up to the industry to do a better job explaining the future role for oil and gas and how it will adapt to a lower carbon economy. Beyond adaptation, stronger communication of the value oil and gas companies can bring to emerging technologies and business models in the energy transition, through application of expertise in supply chains, capital allocation, and technological deployment, can position companies as allies rather than adversaries.

In doing so, companies can go beyond making the case for oil and gas to also explain their value in a time of rapid energy transition.

A note on terminology. Still, we will argue that net zero and the Paris Agreement are key drivers of the transition, and that they have emerged as the targets by which international oil and gas companies will be measured.

A central argument of this report is that oil and gas will remain part of the global energy mix during an extended period of low carbon transition. Many deep decarbonization pathways and scenarios articulate a total or near-total transition away from fossil fuels, both at the global level and in key energy consuming states. The first hypothesis is that even some of the most stringent decarbonization scenarios—such as the International Energy Agency IEA Sustainable Development Scenario and the Shell Sky Scenario—show an ongoing, long-term role for oil and gas, albeit at reduced levels from current demand or the business-as-usual case.

The shift is buttressed by significant growth in electric vehicles, energy efficiency, biofuels, and hydrogen. Gas demand in the SDS is predicted to remain flat in from levels, at 3, billion cubic meters bcm per year versus 3, bcm per year. Bloomberg New Energy Finance, which emphasizes the role of renewables in its scenarios, shows gas-fired power growing at 0. The likelihood of these scenarios materializing is primarily a question of politics rather than technology.

Given that many of the targeted decarbonization technologies are technically feasible and, in many cases, commercially viable—although not necessarily at scale across all sectors—a key unknown is whether governments will mobilize to provide policy frameworks to enable an accelerated transformation of the economy on the scale envisioned by SDS or Sky, or whether the market will be the primary force behind decarbonization.

Without those frameworks in place, the probability of such transformation occurring in reaction to the market alone is unlikely. To date, as the recently released UN Environment Programme data show, governments are showing little capacity to implement decarbonization policies that are consistent with the goals of the Paris Agreement.

This is particularly true in the fast growing Asian regions. Even in the SDS scenario, gas demand in Asia is expected to jump from bcm in to bcm by It is possible or even probable that political dynamics surrounding climate policy will shift, and government policies will move more aggressively to decarbonize. Jurisdictions including the United Kingdom, California, New Zealand, and—most recently—the entire European Union, have implemented net zero emissions policies for Yet these plans, while legislatively binding, have yet to demonstrate that the necessary regulatory follow-through at the industry- or consumer-level will be sustained over time.

Meanwhile, such regulatory efforts may be diluted by voter backlash or industry lobbying in the course of implementation. Still, these large emitters have sector-level energy and environmental policies in place that are supporting the low carbon transition, and they are arguably more advanced and well-established than most other emitters in the developing world. Notably, in these three large markets, natural gas is a key element of supporting the low carbon transition.

China and, to a greater extent, India are building energy strategies that address both air quality and emissions concerns, as well as establish expectations for continued growth in energy demand.

China has prioritized the use of natural gas as city gas to displace residential and commercial coal heating, which has been a large source of GHG emissions and pollutants like particulate matter, among other things. Bold electrification and decarbonization targets set by Beijing and Delhi have followed. However, neither China nor India has the abundant low-cost natural gas resources to switch away from coal. China, producing only India is even more supply-constrained on gas than China.

As a result, even though China and India have announced and pursued policies which have been widely publicized as having the potential to reshape their demand pictures, the breadth of their energy mixes indicates that the question is not whether oil and gas will be part of the transition in China and India and the rest of East and Southeast Asia where similar dynamics apply , but rather how large their role will be, especially in the case of natural gas.

The bottom line is that, despite the increasing penetration of renewable energy and the progress of the low carbon transition, without radical policy changes, oil and gas demand is projected to increase until , and potentially beyond, as developing countries demand more energy, the demand for plastics surges their relative share in the mix grows , and the profile of the fuel mix for aviation and other forms of heavy transportation changes toward specialized fuel grades.

Oil and gas will be included in the energy mix for the foreseeable future, even if the nature of that picture—shaped by a range of market and geopolitical concerns—is decidedly different than it has been in the past. For its part, the United States has undergone rapid changes in its stated emissions commitments from the Obama Administration to the Trump Administration. The absence of the United States in the Agreement has been significant, not only because the United States remains one the largest carbon emitters in the world, but because the diplomatic capital brought to the table by the United States to build consensus has not yet been replaced.

The continued challenges to implementation of the Agreement, particularly the politically-fraught negotiations on carbon-trading systems at COP 25 in late , provide an example of how the leadership vacuum left by the United States is limiting progress towards global emissions targets.

Domestically, the Trump Administration has largely continued its re-think of the climate and emissions policies of the Obama presidency. The wind down of the Obama-era Clean Power Plan in favor of the Affordable Clean Energy Rule ACE represented a step-change in federal ambition to reduce power sector emissions by 32 percent by to only 1.

Meanwhile, the continued growth of US natural gas production has had a direct effect on coal consumption, with natural gas representing 35 percent of utility-scale power generation in The same year, US gas consumption increased by 11 percent, adding This support has also facilitated continued growth in US natural gas exports, which the Trump Administration has argued will be necessary to reduce global emissions.

For oil and gas companies, the less-focused approach to climate and emissions policy by the administration has presented its own challenges and opportunities. US international oil companies IOCs do not face the same top-down pressure to rapidly decarbonize as their European colleagues, but nonetheless remain sensitive to ESG and, in particular, issues around social license. The industry has been supportive of the Paris Agreement and in some cases aligned their own emissions goals accordingly.

Due to the development of several frameworks for voluntary methane reductions by industry-led organizations such as ONE Future and the Oil and Gas Climate Initiative, as well as the successful opposition to a US Environmental Protection Agency EPA -proposed rollback of methane regulations, suggests that the industry is recognizing long-term policy trend towards more stringent emissions and decarbonization standards, even under a presidential administration with a deregulatory bend and an eye to unleash US energy exports.

That said, smaller producers with less capacity for managing complex regulation have preferred the lighter touch of the Trump Administration. New battlegrounds are emerging in high-production jurisdictions such as the Permian, where producers and pipeline operators are caught between environmental concerns due to methane flaring and an infrastructure backlog. State-level regulators have thus far been highly tolerant of flaring permits, primarily out of fear of disincentivizing production, which has resulted in record levels of emissions and caught the attention of environmental groups.

However, the first non-unanimous approval of a flaring permit by the Texas Railroad Commission in August , and a recently filed lawsuit against the regulator for lax oversight of natural gas flaring, suggests that the industry is preparing to bear more of a burden to limit emissions, whether by operating under more stringent regulation or paying for more—and less emissions-prone—infrastructure. Looking ahead, an uncertain policy picture in an election year has left the future of US decarbonization at a crossroads.

The topical dominance of climate policy during the Democratic primary has led to an increasingly fervent series of decarbonization and net zero commitments by candidates in stark contrast to the policies of the Trump Administration. Whether or not these policy proposals will shift during a general election is uncertain, as is the likelihood of their implementation following a Democratic electoral victory in November However, the significant policy gap on energy and climate between the right and left in the United States presents its own questions, not only for the global demand picture but in particular US-based oil and gas companies, which—despite having taken self-regulatory steps in the past four years—may not be sufficient to meet the aggressive decarbonization policies proposed by a Democratic White House.

Policies linked to the low carbon transition will have significant impact on the oil and gas sector from three directions, even if demand continues to exist. The oil and gas sector has an existential interest in these policy frameworks. The first direction is a shift from policies that have historically supported oil and gas production to instead begin disincentivizing those products.

Disincentives are generally associated with carbon taxes, which have wide support as an effective way to reduce GHG emissions through the more efficient use of emissions-intensive resources. Yet few countries have implemented carbon taxes at a level sufficient to materially change consumer behavior on fossil fuels or eliminate the need for further subsidies for electric vehicles.

The second direction is a suite of policies that are intended to encourage the use of substitute technology and fuel, particularly renewable energy.

Moves toward Green New Deal-type policies aim for percent renewables, and may even seek to punish the oil and gas sector through criminal and civil prosecution for alleged past misbehavior on climate change. These programs would also deepen subsidies of emerging technologies like hydrogen and electric vehicles to support massive scaling.

A final policy concept for consideration in the context of the role of oil and gas companies in the low carbon transition is the circular economy. Opportunities for circular economy to leverage oil and gas companies include initiatives such as feedstock recycling from plastics and tires and using waste to generate heat energy.

Circular economy policy activity seems to be driven from the bottom up, in terms of actions from cities, universities, and companies, as much as by national or international action.

The low carbon transition plan that is most likely to favor oil and gas is built around the above-mentioned concept of net zero emissions. Yet this is not certain. Some versions of a net zero scenario include severely curtailed oil and gas production. Others, particularly in oil and gas producing states, would be intended to leverage the competencies of the oil and gas industry, extending its viability into a low carbon future.

The North Sea region will provide an interesting test case, given that the UK and Norway have already committed through binding legislation to a net zero goal by Other petroleum jurisdictions like Canada are likely to follow. Central to these programs will be CCUS, hydrogen, and zero-emissions electrification of upstream production, among other technologies in which even major OPEC producers such as Saudi Arabia and the United Arab Emirates are investing heavily.

Energy Transition Outlook 2020

In the face of a global pandemic, our independent, model-based forecast of the world's energy system through to is needed more than ever. Enhancing the decision-making of shipowners as they navigate the technological, regulatory and market uncertainties surrounding decarbonization. Implications for key stakeholders involved in electricity generation, electricity transmission and distribution, and energy use. The demand, supply, and investment forecast for hydrocarbons to , with commentary on key trends. Energy Transition Outlook Home About the outlook and research team Sector overview Highlights Foreword and watch the launch Highlights: video Highlights: shorter term Highlights: longer term Energy transition timeline Download Power supply and use About Foreword and contents Oil and gas About Foreword and contents Maritime About Foreword and highlights Data Graphs, charts and interactive dashboard Energy transition insights Archive Download centre Access our forecast data Contact and information. About the Energy Transition Outlook In the face of a global pandemic, our independent, model-based forecast of the world's energy system through to is needed more than ever.

Nikita O. Grushevenko 1 ,2. Received: 22 April Accepted: 16 July Yet, nowadays the industry is facing a number of serious challenges, which threaten to undermine its sustainability. These challenges include depletion of the conventional oil resources, technological and economic sanctions and stagnating demand for liquid fuels, especially apparent in Russian traditional export destinations — Europe. The authors attempted to evaluate the impact of these issues and compile a forecast of Russian oil industry using state-of-the-art modelling tools. To ensure sustainability the government and oil companies need to work in conjunction in several fields: facilitate geologic survey of conventional and promising oil and gas basins; domestic development of new oil extraction technologies for accessing unconventional and low-margin oil resources; provide transport infrastructure for remote fields; reforming tax system to better suit the new environment.

From an energy perspective, we were busy watching: a) OPEC extend its cuts and adhere to them, b) US producers increase production and keep costs down, and.

U.S. gas and oil industry annual revenue 2010-2018

The edition provides updated analysis to show what the latest data, technology trends and policy announcements might mean for the energy sector to It also outlines an integrated way to meet multiple sustainable development goals: limiting the global temperature rise in line with the Paris Agreement, addressing air pollution, and ensuring universal access to energy. These points of orientation allow for rigorous thinking about the future against a backdrop of cost reductions in key clean energy technologies, the continued vitality of shale in the United States, and the fast-changing dynamics of energy investment.

As the third decade of 21st century begins, the oil and gas industry faces opposition from a public greatly concerned with the environmental impact of fossil fuels, ever-more skeptical shareholders, and challenges from policy makers seeking to simultaneously meet decarbonization goals and expected oil and gas demand. Amidst a global energy transition, the demand, financial, and social future of oil and gas companies is increasingly in question. However, even with these obstacles, oil and gas remain an important part of the energy mix, especially in developing regions. In the United States, India, and China—the three largest greenhouse gas emitters—natural gas in particular has the potential to remain an integral component of the low carbon energy transition for decades to come, depending on the policy mechanisms and technologies in place. In addition to disincentives, many governments are encouraging the use of substitute technology and fuel, especially renewable energy.

Oil and gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. The Government has adopted several policies to fulfil the increasing demand. India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. India retained its spot as the third largest consumer of oil in the world in with consumption of 5. Private companies own about

Commodity Markets

Oil is the annual five-year IEA forecast of global oil demand, supply refining, and trade. Global oil demand growth remains healthy driven by developing countries in Asia, even as oil consumption growth slows down in the People's Republic of China due to new environmental policies designed to curb air pollution. Strong growth in petrochemicals demand globally is another key area of growth. Upstream investments have not rebounded from the historic two-year decline seen in except in the United States, which dominates the supply growth story.

Evolving energy demand and pricing outlooks are transforming the oil and gas industry. But few companies are fully harnessing the power of digitalization. The sector requires new business models, rationalized portfolios, accelerated investment in digital technologies and greater capital flexibility. Our experience across the oil and gas value chain and our collaboration with leading technology firms provide a unique combination of resources.

March 05 To those outside the energy sector, the process which companies find hydrocarbons, bring them to the surface, and deliver them to consumers may generate as much curiosity as pouring a glass of water from a kitchen sink. To illustrate this volatility, one merely needs to look at the price chart for West Texas Intermediate WTI over the past five years see Figure 1. Some of these trends are highlighted below and explored in more detail in the following sections to understand this industry. Specifically, increasing emphasis on hydraulic fracturing and horizontal drilling techniques have made both hydraulic processes more efficient and prolific. Particularly in the US, the shift towards these techniques has drastically increased production levels, which has in turn pressured domestic prices for both oil and natural gas. Shale hydraulic fracturing is one example of technological advancement in the industry which has unleashed significant potential to access previously unreachable reserves.

Upstream capital expenditures have not yet recovered commensurately with prices in as companies remain cautious, at least for the time being. At the.

The role of oil and gas companies in the energy transition

Download high resolution map. In many — if not all — regions, production is also rising. It shows that:. This report, like its predecessors, looks at regional production and demand figures for both oil and gas. IOGP continues to be grateful for the data and insights that our Members have provided for this report. Once again, it shows how for long-term prosperity and security of supply, the world needs further investment for responsible oil and gas production in each of the seven regions covered. Gordon Ballard Executive Director.

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World Energy Outlook 2018


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