If you have been following coverage of the oil price changes of the past year, you will be aware that unconventional US shale players now seem to have as big an impact on global price movements as OPEC. Indeed, Ed Crooks, writing in the FT recently called the small and mid-sized US shale companies “the most potent new force in the energy industry in the 21st century.” But trace potential developments further and this could just be the start.
Buchanan was delighted to attend an industry seminar by sector experts Gaffney, Cline & Associates in which many important themes were discussed, among which was the future role that unconventional resources could, and arguably have, come to play in the energy landscape.
Unconventional resources today comprise 50% of the global resources but only 4% of global production. By 2050 this figure is estimated by GCA to substantially rise to 40% of global production, a radical change in the composition of the oil and gas sector worldwide.
There are many reasons for estimating this potential shift in the industry. For one, the climate change agenda is more prominent now than ever. The Paris climate conference in 2015 saw 195 countries sign a binding agreement to limit global warming, which was followed by the Oil and Gas Climate Initiative and the world’s top 10 independent producers collaborating to reduce the impact of the industry on climate change. One consequence of this has been a review of asset portfolios, with the supermajors, such as BP, Chevron and Exxon opting to include more natural gas (be it shale or conventional) in their portfolios. Why? Because natural gas burns more cleanly and emits less Carbon Dioxide than other oil products.
The geographical spread of unconventional production will also be notably altered by such a shift. Although today US and Canada dominate this market, it has long been touted that Argentina may soon join them following a US Energy Information Administration report in 2011 that announced the vast scale of the potential resource presence within the shale reservoirs beneath the country. Others may yet commence large scale unconventional operations including Australia, Algeria, the Gulf States, South Africa and Colombia.
It is even a development which has reached the manifestos of most UK political parties in the run-up to the last election, with Labour notably in favour of banning unconventional UK exploitation and the Conservatives endorsing the opposing view. Early resource estimates from the British Geological Society suggest there are reserves of 150bcm in the UK (in 2015 the UK’s total gas consumption was 67bcm). This is against a domestic backdrop of increasingly expensive production from harder to reach locations in the North Sea and growing dependency on imports (in fact, all 28 EU countries now import more energy than they export). Whether we choose to exploit the resource or not, at the very least it is attractive for the UK to have the option of domestic access to another major source of natural gas.
It is interesting that even GCA’s estimates, which are bullish on the role of unconventional, still state that conventional E&P production will remain the majority method of production. Of course, we must remain mindful of crude being the base commodity for more than just energy products, as it remains a vital ingredient in plastics and a plethora of chemical products that are consumed in significant quantities around the globe each day.
Looking back at the changes to the energy industry in the past decade it is difficult to quantify what the market may look like in 2040, but keeping up to date with current developments that could influence the oil price will remain of paramount significance for many, both within and beyond the sector.
For more information contact Ben Romney, Partner
020 7466 5000