Oil & Gas Demand outlook versus Environmental Implications

Attending 40th IAEE upon Singapore Conference organizers’ invitation to speak about “Mitigating Carbon Lavishness” it’s been interesting to follow the “English Debates” among mostly economist scientists about Energy Supply Security, Climate Change countermeasures and Politics. For those who may not interpret why I specified the format of debate: In an “English Debate” each party brings forward its own pre-prepared arguments and thesises without actually reflecting on any issues explored by other participants leaving it to the audience to form its own opinion and conclusions on the various subject matters perceived. Therefore my following summary can only represent my personal reflections and extrapolations from what experts may have said even in other contexts.

IEA Director for Energy Makrkets, Leisure Sadamori, based in Paris’ AIE contemplated that shale oil cost of exploration had come down from U$70 per barrel to U$40 since 2012, without disclosing further details. In spite of Paris Climate Accord the Oil industry still expects growing demand for the period 2015 – 2040 to compensate for declines through fuel-economy and emerging electric vehicles in transportation in an order of 1 Million Barrel a day (-4%) as well an almost 3 Million Barrel a day (-50%) reduction from the power sector. However expectations are that this will be compensated by an increase of 6 Million Barrel per day (+80%) in the petrochemical industry. Ongoing assumed total growth of demand will former shrink swing capacity capabilities of OPEC members below 2008 oil peak’s 3.7% stock flexibility to 2% by 2020. Nevertheless the Oil price scenarios are forecasted in contrast to 2008 below U$60 per Barrel. This longer term ceiling is reasoned by LNG becoming the future switch fuel which at U$60 per barrel oil can compete with synthesized transportation fuels against refined oil derivatives. There is common consent on NG being the cleanest (most Carbon Efficient) fossil fuel, for which some people might even be prepared to pay more.

Coal is seen as a historic item having peaked 2013 and ever since been limited to just keep existing installations running, although there are still new plant implementations undergoing. Europe is seen to have banned coal, in the US Shale Gas is too cheap for coal to even compete and in China the Clean Air concern has taken many older coal power plants already off the grid and will continue to do so as new constructions will come online. Previous plans of China and India for new coal power plants have recently been reduced by 1/3. But by the end of a day Energy remains always a political aspiration versus investors’ decisions. And the most common basis for decisions is still the oil price. Therefore for the remaining period of the Trump Administration we might see oil plunge to even U$30 per barrel which would definitively slow new LNG projects for the period after 2022. Even Russia struggles with its various project proposals to future potential customers feels vulnerable now about whether to build its Siberia pipeline, the Sakhalin/Rostnewt Liquefaction terminals and/or develop its East Siberian resources into proven reserves. Mozambique aspiring to develop LNG has a hard time getting the Final Investment Decision although almost 2/3 of the offtake would be granted from Japanese and Thai (PTT) co-investing project partners. Since the South Australian Basin exploration came to market the willingness of potential clients to invest in the LNG terminals like they did for the ongoing US export roll-out from currently 2.6 to 9bln cbft / day in the form of option fees for rights of supply is gone. These were triggered less by demand than for strategic negotiation power strengthening vis a vis Qatar charging a premium in Asia almost doubling the US Henry Hub prices. But without new demands all of the ongoing LNG developments will end in an excess capacity.

No wonder the Oil & Gas industry hopes Renewables to fail meeting the Paris Agreement targets! In such case 2022 LNG capacities would not be enough to keep the status of a switch fuel, oil has been dominating for the last five decades and could pertain to do so. Concerns of synthetic fuels to substitute refined oil derivatives would disappear and all ongoing LNG projects could become the white knight of “decarbonisation” grace to Natural Gas’ most favorable Hydrogen to Carbon ratio’s superior Carbon Efficiency. For the time being it seems nobody has a good cause to invest in any option. The only representative who spoke that out frankly was a lady from Russia on the panel. All others didn’t admit but indirectly said the same. In this context it was pointed out that some OPEC countries recently directed their investments into Renewable Electricity projects for future export of at least secondary energy, should their market positions for primary energy resources melt away.

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