Is Petroleum Geology a 20th Century Industry?

“Prediction is difficult, especially of the future,” goes an old Danish proverb.

But that doesn’t keep people from trying, as each year government agencies, multilateral organizations, E&P companies and consultancies issue their forecasts on global energy supply and demand.

The value of these forecasts is that they capture, at a specific moment in time, the views of individuals who think deeply about energy. Each forecast represents unique perspectives, assumptions and predictions. There are so many variables in our global energy systems that it’s less about which forecast is right, and more about the range of plausible scenarios that define the boundaries of how circumstances are likely to evolve.

One scenario they typically agree on is that the world is getting richer and that’s a good thing. Continued GDP growth fueled by growing energy demand is allowing more and more people to increase their standards of living. This is occurring in the developing world, and the large economies of Asia, such as China and India, are leading the way.

BP’s annual energy forecast published last month projects that global GDP will more than double by 2040. The McKinsey & Company outlook released in January sees GDP doubling in real terms between 2016 and 2050.

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“Prediction is difficult, especially of the future,” goes an old Danish proverb.

But that doesn’t keep people from trying, as each year government agencies, multilateral organizations, E&P companies and consultancies issue their forecasts on global energy supply and demand.

The value of these forecasts is that they capture, at a specific moment in time, the views of individuals who think deeply about energy. Each forecast represents unique perspectives, assumptions and predictions. There are so many variables in our global energy systems that it’s less about which forecast is right, and more about the range of plausible scenarios that define the boundaries of how circumstances are likely to evolve.

One scenario they typically agree on is that the world is getting richer and that’s a good thing. Continued GDP growth fueled by growing energy demand is allowing more and more people to increase their standards of living. This is occurring in the developing world, and the large economies of Asia, such as China and India, are leading the way.

BP’s annual energy forecast published last month projects that global GDP will more than double by 2040. The McKinsey & Company outlook released in January sees GDP doubling in real terms between 2016 and 2050.

Wealth and Energy Demand to ‘Decouple’

An emerging middle class in these rapidly developing countries drives yet further energy demand. Interestingly, the wealthier a nation grows, the more focused its citizens are on energy choices that are cleaner. A subsistence farmer will slash and burn rain forest, choking the air with smoke, to feed his family. Parents in wealthy economies whose children suffer asthma attacks whenever an inversion traps smog over their city will pressure civic authorities to do something about it.

Another feature of economic development is that as economies mature, they reach a tipping point. As economies move from subsistence to manufacturing to service, the energy intensity of that economy decreases – you still have GDP growth, but it takes less energy to produce that growth.

In fact, McKinsey forecasts that while GDP will double by 2050 the growth in global energy demand will be only 14 percent. BP’s “Evolving Transition” scenario sees global energy demand growing by a third to 2040.

This marks a change. As McKinsey puts it, “After more than a century of rapid growth, global primary energy demand plateaus around 2030 ... It is the first time in history that growth in energy demand and economic growth are ‘decoupled.’”

BP doesn’t forecast a plateau by 2040 but agrees that global energy demand will increase “at a significantly slower rate of growth than in the previous 20 years.”

Cleaner Energy Mix

A point of significant agreement between the BP and McKinsey outlooks is the evolution of the fuel mix. Growth in renewable energy dominates. According to BP, renewables will grow at 7.1 percent per year and will increase from 4 percent to 15 percent of total energy supply by 2040. McKinsey adds nuclear to renewables and together they growth from 19 percent today to 34 percent by 2050, delivering 50 percent of total electricity by 2035.

Coal continues to be an abundant, reliable and cheap source of power generation, but its share of energy supply is flat through 2040, according to BP. Its use is projected to fall in rich countries and China. But India and other Asian economies will rely on coal to meet their voracious appetite for power.

Like renewable energy, natural gas sees strong demand growth through 2040. BP projects 1.7 percent per year growth in natural gas demand leading to nearly 50 percent growth by 2040. McKinsey echoes this view, seeing strong demand for natural gas before plateauing in 2035, and noting natural gas’s versatility as a fuel source, playing a role in power generation, petrochemicals, and transportation.

Crude oil continues to grow, albeit slowly, at 1 percent per year, according to McKinsey. They also see demand plateauing in the early 2030s at 108 million barrels per day. BP projects a similar plateau in the 2030s at 108 MM bbl/d. The dominant use of crude oil is for transportation fuel.

Half of Global Energy

But a plateau is not a cliff. And if these projections are correct, it means that our industry in the 2030s and beyond will be responsible for finding and developing the reserves necessary to produce 108 MM bbl/d – that’s a significant challenge, and it contravenes the popular perception that oil and gas is in decline; that ours is a 20th century industry.

In fact, it is the petroleum geologist that is going to help supply the oil and natural gas that McKinsey predicts will represent 51 percent of energy demand in 2050.

This is the much-heralded energy transition that everyone keeps talking about.

Let me restate that: 30 years from now, the petroleum geologist will supply half of global energy demand, and thereby enhance the lives of billions who don’t have access to enough energy.

You can still build a rewarding and meaningful career in this business.

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Comments (2)

201th century
Maybe that is the point??
3/12/2019 3:00:45 PM
Wrong Century
The headline should read 21st Century. 20th Century was over 19 years ago.
3/11/2019 2:10:08 PM
yxrubzvevxzeczct

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