Challenging PC Perceptions: The Death of Oil and Gas

We've been beaten. We've been bloodied. We've seen the hard times. And it's not yet over. However there is determination and a strong case that we have not seen the end to 'hydrocarbon based energy' // I use this term as a more politically correct variant to "Oil and Gas", it gives the sector a more polished representation of course...

I like to think myself as being a realist and a pragmatist. Don't get me wrong, we have to aspire to better things if we are to make the world a better place; a responsibility we all have as global citizens. However in line with those aspirations, it my my firm belief that we should take the hand we are dealt, and make the best possible play. It's all about the fundamental facts and finding the best way forward, something I would argue we have lost sight of in the present context of what is deemed politically correct.

I started working indirectly in oil and gas in 2011, and directly since 2013. Like many twenty somethings fresh out of education and into industry we've seen the highs and lows, the excess and the cutback. It's been a ride, that's for sure. No doubt like many of my peers, I have often asked myself if I'm in this industry for the long run, or even more recently, whether or not there will still exist such an industry for me to contribute to.

'Existential' threats to the industry have of late been highlighted. Just this morning I read Land Rover/Jaguar confirmed, like Volvo, that from 2020 all new models will be electric or hybrid. A prominent CEO of one the the largest IOCs also confirmed recently that his next car will likely be electric.

The recently agreed Paris accords have seen Governments worldwide pledge to reduce our carbon footprint and invest significantly in a wave of 'new energy projects'.

Offshore wind has grown significantly in Europe in recent years, and in the near term expected to provide 15% of electricity demand to the UK. In the wider context of mainland Europe (EU countries minus the UK), some studies have suggested 7 - 11% of electricity demand will come from offshore wind by 2030.

As anyone who visited the Offshore Wind Energy Conference conference in London this summer will tell you, it was full of optimism, enthusiasm and growth...something of short supply in the 'hydrocarbon based industry'.

Furthermore, Peak Oil is of course on the horizon (according to the collective 'some') and as such the relevance and future contribution of the archaic oil and gas industry must really be questioned. In the UK in particular, decommissioning and removal of aged and redundant structures has become an industry focus, and 'some' interpret this as a sign of things to come.

'Some' will say that hydrocarbons are not the future, it's part of the past; we need to look forward to new, modern, cleaner and more exciting forms of energy. To many in my generation, and those that are soon to follow, there is a sentiment and perception that we want to engineer, design, deliver and maintain a legacy of energy that makes the world a cleaner, better and more efficient place. I mean; who wouldn't want to be a part of that?

Sentiment, and perception are of course powerful concepts - and the reason by which I felt the need to write this post today - not something I have ever done. Because if we are to make the best of what we have, we need to look to fundamental facts, and not be buoyed away by sentiment and political correctness alone.

What we really need is to inform ourselves and engage in a dialogue about the future of energy. Like many, I'm sure we all have busy schedules to keep, work to be done, kids to look after, friends to see - so reading, listening and learning about the wider context of what we do for a living just seems like a chore on top of anything else. However if the informed intelligent people of the world cant find time to do this - then we will be subject to nothing more than the politically 'correct' sentiment of the time and suffer the consequences accordingly.

As Walter Lippmann said:

Over the course of the past few days I have heard from respected experts at Offshore Europe covering various fields of academia, media and industry as to the current themes affecting the hydrocarbon industry. Here are just some of the things I picked up:

Energy transition is happening make no mistake, but the rate of transition and the misconception around it is what strikes me as damaging and dangerous.

Electric Cars

In the next 5 to 10 years, there is forecast ZERO impact of electrical cars on the oil industry and commodity price.

In scenarios that plot 50% electrical vehicles (new sales) by 2030 and 90% by 2050 - representing a fundamental shift in transportation, and 50% of global electricity generated from renewable power - Oil demand is forecast by 2050 to drop from 100 m/bd - not to zero - but 63 m/bd. This is based upon all nearly all vehicles globally adopting the technology, a transportation revolution if you will. Even in this scenario, oil is relevant.

Demand could also as likely be 123 m/bd depending on a conflict scenario globally, impacting the ability to generate capital to fund these new energy projects. In such an example oil is even more relevant (albeit unlikely hopefully).

In both scenarios - population growth, and wealth generation in forthcoming years will continue the trend for energy demand growth.

Offshore Wind

Projects involving offshore wind and the need to reduce our carbon footprint sound great in principle; which is why many politicians seize upon the issue - it makes a nice tagline for the electorate to consume - and in terms of policy it suggests that morally they are doing the right thing for the environment and their people.

Whilst a great PR coup is underway to promote such initiatives, have you ever stopped to ask how much this costs? Is it a sustainable model for energy? Whilst cost reductions to develop this technology and capability have been impressive - can it now compete against a leaner, more efficient hydrocarbons industry? Given the recent efficiency drives by operators we have seen uplift costs more than half in many instances adding significant value to power generation.

I appreciate my background may suggest bias against offshore wind - however I'm asking these questions - non rhetorically - but in line with the facts. To clarify I'm not against renewable concepts for energy, some technological developments that have been made are fantastic - the real questions are:

• Does it /could it meet the global need for energy on a sustainable basis.
• Can we afford it?
• Is it the more efficient model?
• Does the cost benefit scenario work?

Whilst cleaner energy is important, affordable energy, and access should be the end goal in itself. According to the International Energy Industry it is estimated that there are 1.2 billion people in the world without access to electricity.

Operators move into renewables

'Some' may question the relevance of oil given that operating companies are investing themselves into the renewable energy space.

To respond: after the recent oil shock, and the relative instability of the world at present with regards to geopolitics and conflict, it makes good business sense to diversify your portfolio and reduce risk. It is not a business model in itself.

It's not all about electricity

Ask yourself; did you brush your teeth this morning? If you did you will have used an oil product in the form of plastic and synthetic material to do it. Oil production is not just about energy, it's about plastics and new materials that not only allow us to complete day to day tasks we take for granted, but also help us come up with new materials and technologies to innovate for tomorrow. It's a lesson I'm sure we were all taught in chemistry class and have somehow forgotten about it.

The biggest challenge

The biggest lesson I have taken on board over the past few days of the conference however was listening to the industry concerns of Bob Dudley and Ben van Beurden; Chief Executives for BP and Shell respectively. And the big issue that came up was recruitment and the future development of the oil and gas industry. The recent commodity crisis, job cuts, environmental concerns and the advent of new energy sources have undoubtedly dented interest from the next generation of technical professionals seeking out an industry. This creates a serious issue as the average age of the workforce reaches into the 50's (in the UK at least) and in a decade where will the future workforce come from?

As such; perception and sentiment whilst not much in substance can have a significant detrimental impact if not challenged.

So on that note, I hope that in reading this (what was meant to be short) piece you can be open minded that the oil and gas industry is here to stay. It is not about to fall of a cliff. It is still relevant. It will continue to be a great place to work for the next generation of professionals. But we need to make clear there is a place for them to contribute to a bigger energy picture.

That's how I've concluded. I've formed my own opinion by examining the fundamentals, checking the source and engaging with the better minds than my own. If you have read this far I encourage you so the same, don't just take my word for it - that's the point!

Hopefully you arrive at the same conclusion that I did. If not, fine - I have all due respect to those that strive to answer the question and start a conversation.

And as to the PC nature of things, read between the lines. Look past what is politically correct and make your own mind up about our energy future. Whether it's the hydrocarbon based industry or the oil and gas industry doesn't really matter - a spade is a spade - it digs a hole just the same.

Hopefully you found my post engaging. If you want to find out more about market outlooks or trends, or want to know more about the intelligence led subsea solutions at Archer Knight, email me at [email protected]

Best regards

Ross