OTC 2022: Reaching net zero will require more investment in oil, gas and renewables

The pandemic had a unique impact on the energy industry and will pave the path of the energy transition on its way to net zero emissions, Society of Petroleum Engineers President Kamel Ben-Naceur said during a keynote presentation at the Offshore Technology Conference on Monday.

The pandemic’s impacts. The Covid-19 pandemic brought the biggest one-year drop in oil demand at 10.4%, Ben-Naceur said, while natural gas demand dropped by about 2%, and coal and nuclear demand dropped by about 4%. Demand for hydroelectric and renewable energy increased, though by smaller margins.

Upstream investment had seen steep declines in previous years, Ben-Naceur noted, citing the 26% drop in 2015-2016. However, investment went back up through 2019 before experiencing a 30% drop in 2020. “If we look at the relative decrease in investment in the upstream sector overall, in less than five years, we have reduced the upstream investment by 50%,” he said. “Which is almost unheard of. You have to go back to the mid-80s to see that kind of a trend.”

Emerging from the pandemic. Oil demand is back to pre-pandemic levels this year, Ben-Naceur said, adding he expects that trend of increasing demand to continue in 2023.

The “most spectacular” increase is in the price of natural gas, he said. Between April 2020 and the end of 2021, natural gas went from about $3 or $4 per MMbtu to about $40 per MMbtu, a ten-fold increase. “We have never seen that kind of increase in gas prices within a period of one year,” he said.

Composite price index inflation is also a concern, as these levels of inflation haven’t been seen since 1995, Ben-Naceur noted.

The U.S. rig count hovered below 2,000 from 2010 to 2014 before experiencing a big drop in 2016, but is now steadily climbing back up and sitting just under 700. Ben-Nacuer said the correlation between oil price and oil and gas rig count has been steady, but 2021 is the exception.

“We are way below traditional lines in the rig count, so the activity has not recovered,” he said. “The shale producers in 2021 changed their strategies. They have focused on shareholder returns.” This is quite a significant change in 2021, he said. The uncertainty of oil prices has led to caution around expanding investment, Ben-Nacuer noted, and there is a new balance that’s emerged between investment levels and shareholder returns. However, there has been a significant increase in upstream investment in 2022, he said.

The energy transition reality and future perspectives. The energy transition is looking more like a reality, as electric car sales jumped from 1 million to 2 million before 2018 to almost 7 million, or 9% of new cars sold, in 2021. Renewable power capacity continues to be added, and the industry is always learning about incentives of decarbonization, Ben-Nacuer said. He said recently, one ton of CO2 was valued at 100 Euros for the first time.

There are a few different energy transition scenarios predicted by the International Energy Agency, and each one would bring different costs and results. For the first time, today’s pledges – if implemented on time and in full – would keep the rise in global average temperatures in 2100 to below 2 degrees Celsius, according to the presentation, but there’s still a large gap to 1.5 degrees Celsius.

Decarbonization will require many combined factors to be successful, including avoided demand, CO2 capture and storage, hydrogen, bioenergy, technology performance, electrification, other renewables and other fuel shifts. But no matter the combination or policies, reaching the net zero emissions goal still requires more oil and gas investment, Ben-Nacuer said.

“We still need to invest more than what we invest today. Investment in the oil and gas industry will be crucial. And we are not investing enough in clean energy,” he said. “That’s the big problem that the world faces.”

Some of that investment will be in carbon capture and storage, which is predicted to expand significantly by 2030. Rystad Energy found projects are on track to abate more than 500 million tons of CO2 emissions by 2030. That number is lower than 100 million tons today. The Society of Petroleum Engineers is working with other organizations to create a Storage Resource Management System for CO2 based on the Petroleum Resource Management System, Ben-Nacuer said. This will help facilitate the adoption of standards and accelerate the uptake of CCUS, he said.

“The world continues its need to access energy securely, in an affordable way, and in a clean way,” Ben-Nacuer said. “Reduction of greenhouse gas emissions and flaring is critical. Accelerating the energy transition will still require a large share of oil and gas.”

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