Hydrocarbons Expected to Remain the World’s Primary Energy Source

Lower cost and lower carbon.

That’s the energy future for which geoscientists need to start preparing now, according to Neal Anderson, president and CEO of Wood Mackenzie in Edinburgh, one of the world’s leading energy research and consulting firms.

And get ready for a 3-degree Celsius warmer planet instead of the 1.5-2 degrees envisioned in the 2016 Paris climate accord, WoodMac advises.

Addressing climate change will be a significant challenge for the oil and gas industry and energy producers in general, Anderson said.

“It’s an extremely complex problem, and it will take a multitude of approaches,” he observed.

Anderson himself is a geoscientist, having earned his master’s degree in petroleum geology at Imperial College in London before moving into an industry role with BG, then known as British Gas, first in exploration and production and later in strategic planning.

After joining Wood Mackenzie, he became head of global energy research and then global head of consulting before his appointment as company president in 2015.

Fossil Fuels Still Dominant

At AAPG’s Energy Transition Forum in Edinburgh last month, Anderson delivered a presentation titled “What Is the Future Role of Geoscientists in the Energy Business?” He drew on WoodMac’s 2019 Energy Transition Outlook for his remarks.

The study’s projections have substantial implications for the oil industry. Its base-case assumptions conclude that 80 percent of the world’s energy mix in 2040 will still come from hydrocarbons – crude oil, natural gas and coal.

“If you follow our base case, with 80-percent hydrocarbons by 2040, you can see there’s a real need for exploration,” Anderson said.

He contrasted that outlook with an International Energy Agency sustainable development scenario with hydrocarbons representing 60 percent of the global energy mix in 2040, and declining.

“If you believe that’s the way the world is going to play out, you wouldn’t expend another exploration dollar,” he noted.

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Lower cost and lower carbon.

That’s the energy future for which geoscientists need to start preparing now, according to Neal Anderson, president and CEO of Wood Mackenzie in Edinburgh, one of the world’s leading energy research and consulting firms.

And get ready for a 3-degree Celsius warmer planet instead of the 1.5-2 degrees envisioned in the 2016 Paris climate accord, WoodMac advises.

Addressing climate change will be a significant challenge for the oil and gas industry and energy producers in general, Anderson said.

“It’s an extremely complex problem, and it will take a multitude of approaches,” he observed.

Anderson himself is a geoscientist, having earned his master’s degree in petroleum geology at Imperial College in London before moving into an industry role with BG, then known as British Gas, first in exploration and production and later in strategic planning.

After joining Wood Mackenzie, he became head of global energy research and then global head of consulting before his appointment as company president in 2015.

Fossil Fuels Still Dominant

At AAPG’s Energy Transition Forum in Edinburgh last month, Anderson delivered a presentation titled “What Is the Future Role of Geoscientists in the Energy Business?” He drew on WoodMac’s 2019 Energy Transition Outlook for his remarks.

The study’s projections have substantial implications for the oil industry. Its base-case assumptions conclude that 80 percent of the world’s energy mix in 2040 will still come from hydrocarbons – crude oil, natural gas and coal.

“If you follow our base case, with 80-percent hydrocarbons by 2040, you can see there’s a real need for exploration,” Anderson said.

He contrasted that outlook with an International Energy Agency sustainable development scenario with hydrocarbons representing 60 percent of the global energy mix in 2040, and declining.

“If you believe that’s the way the world is going to play out, you wouldn’t expend another exploration dollar,” he noted.

Limiting Carbon Emissions

WoodMac’s 100-page energy outlook is less than sanguine about the world’s ability to limit future carbon emissions. Its analysis “sees carbon emissions continuing to rise into the 2020s, with growth slowing only in the 2030s,” an excerpt stated.

Notably, it found that power generation and private vehicle transport account for only the smaller part of the carbon challenge, with decarbonization efforts developing slowly in other sectors.

“The obstacles presented in industry, manufacturing, housing, aviation, shipping, agriculture and heat dwarf those in power and road transport,” the outlook concluded.

“Little to no progress has been made in commercializing technologies in those segments; hopes are turning to hydrogen and carbon capture and storage as the panacea,” it added.

An Evolving Toolbox

WoodMac bills its energy transition outlook as “a result of our teams pushing the cost technologies and adoption rates as much as we think can happen, given the inertia already embedded within multiple business cycles.”

“What emerged is a conservative outlook, one in which the current pathway looks more like 3 degrees Celsius of warming than the 2 degrees or lower advocated in Paris,” it found.

Among the multiple barriers to a low-carbon future are limits on emissions policies and regulation, and that difficult-to-change “inertia” of the world’s existing energy structure, WoodMac concluded.

“We are not particularly confident that 2 degrees Celsius can be achieved due to: the challenges across technology, policy, regulation and cost; inter-governmental constraints; trade and consumer choice; and what is built into the current energy systems of today,” it found.

For the geologist, this means a continued future in energy production, with regional-scale geoscience a key competency and an evolving geoscience toolbox a necessity, Anderson said.

That toolbox also has to acknowledge the demand for mining metals and minerals like aluminum, iron, lead and nickel, for renewables like wind, solar and geothermal activities, and even for nuclear energy.

“I think there will always be a niche need for geoscientists, especially in exploration, because I don’t think the world is going to get its act together” and develop low-carbon approaches that can provide adequate energy for the planet, Anderson said.

The Lower Cost Prevails

Today, the oil and gas industry should look for prospects and projects offering “the opportunity for materially lower cost and lower carbon,” he urged.

Anderson’s viewpoint isn’t hard to understand. The lowest cost, most economical energy sources will prevail. If the world wants to address climate change through reducing carbon emissions, the economical sources have to be lower-carbon sources.

And if lower-carbon energy sources aren’t economic winners, the scale will need some rebalancing.

“One of the things we strongly advocate is to put a realistic price on carbon, either through a trading mechanism or a tax. We favor a carbon price because, if you believe in markets, the markets then will decide which technologies will work,” Anderson said.

WoodMac’s energy analysis considered a number of future exploration possibilities, finding that most will need game-changing technologies to reduce current high costs. As an example, Anderson cited the development of international unconventional resource plays.

“There are so many handicaps to get that to work, it really doesn’t fit the profile of low-cost, low-carbon resources with a reasonable lead time,” he said.

Frontier exploration still has a place in the future energy picture, but it also has to fit the lower-cost, lower-carbon pattern, Anderson said.

“As a former geologist, I think there’s more art than science in frontier exploration, taking a very holistic view of plays and basins, because there’s a real scarcity of data,” he noted.

“Some of the best exploration geoscientists I’ve come across truly can think in a different dimension,” he observed.

A New Era

If there is a sustainable energy future for the world, nuclear energy “will have to be a part of it,” Anderson said.

“The real challenge, I think, is just the public perception of nuclear. We would encourage people to take another look at that,” he added.

At the AAPG forum, Anderson included an example of how misleading or irrelevant data could affect exploration choices, describing it as “a little bit tongue-in-cheek with a serious message wrapped around it.”

In the example, he cited misleading data in an unconventional resource play that could produce a statistically accurate model, and contrasted that with relevant, real-word data like formation thickness, brittleness and carbon content.

Geoscientists understand the difference, he said.

“How do we understand that? Because we’re geologists and we know the importance of total organic carbon, of clays,” Anderson noted.

This points up another reason energy geoscience is essential to the exploration process, he said.

“You still need subject expertise to separate misleading data from significant data,” Anderson observed.

Industry clearly recognizes the effect that demand for a low-carbon world will have on future geologists. AAPG’s Edinburgh forum was subtitled, “A New Era for the Geoscientist.”

Students and others entering energy geoscience today “need to go into it with their eyes open. There are so many uncertainties, and they need to be aware of that,” Anderson said.

Also, he added, they should understand where demand will be and what geoscience skills will be needed in the future.

And, “last but not least, they need to be passionate about this industry, and that this industry can help solve the climate problem,” he said.

Anderson described himself as “intensely proud” that the oil and gas industry has provided the world with adequate and affordable energy for the three decades he has been in the business.

“I am so fed up with the oil and gas industry being called the bad guy,” he said. “We need to add a fourth dimension: sustainable hydrocarbons. Instead of seeing ourselves or the public seeing us as part of the problem, we are also equipped to be part of the solution.”

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Comments (4)

Future of oil
Anderson is likely to be right as future teller on demands due three reasons. A) No disruptive technology has appeared to attribute great flexibility, affordibility and applicability to the alternative sources to replace oil and gas in the sectors they are serving. B) Historically speaking, humanity has insatiable thirst for energy. They started with sun, air and water even after coal and oil appeared, they have not let the old friends go. C) There is huge potential for demand growth while the 2015 per capita energy consumption in US was 6804 kg of oil equivalent, that in Mexico, in the same geographical area, was1537 kg. One can well imagine the gap that remains to fill in Africa and Asia. The industry would do well to deal with the situation ‘as it arises’ basis. The projections of future climate with the resources that cannot predict weather a month in advance looks an exercise in fantasy. Further, I have this fundamental question. It is undeniable the earth warmed and cooled before the humans appeared. Seeing the humanity rise, have the natural forces that caused those upheavals have gone on leave?
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11/13/2019 3:05:25 AM
AAPG members are best served when the organization sticks to the science of Petroleum Geology
Regardless of what one might think about AGW and climate change, it is not the purview of AAPG to promote "sustainable" alternatives to fossil fuels. Clearly, most AAPG members don't have expertise or interest in climate science and environmental activism; we want to continue exploring for and delivering the energy source that has helped provide more than 80% of the "fuel" that powers human civilization -- and has helped bring about the biggest decrease in global poverty the world has ever seen. As we're all aware, AAPG and its publications exist to advance both the science and the professional practice of petroleum geology -- not renewable energy. We want to see market-driven demand for oil, natural gas, and other fossil fuels remain strong well into the future; we must resist the top-down forces that seek to drive our industry to extinction. Let's at least not accept the premise that fossil fuels are going to be eradicated.
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11/7/2019 7:22:14 PM
Continued study on the role of carbon emissions required
Based upon what I have read the hyperbole associated with carbon emissions should not be presented as fact. Much additional study should be encouraged so that a better understanding of all climate controlling factors and their relative impacts can be determined. As geoscientists we of all people should understand that the Earth's climate is not "fixed" but is in a constant state of flux.
11/7/2019 11:12:54 AM
The industry must set a goal that leads geoscientists to a hospitable planet
There is much to agree with in the reported comments of Neal Anderson, president and CEO of Wood Mackenzie. I am disappointed, however, with Mr. Anderson’s statement “We are not particularly confident that 2 degrees Celsius can be achieved…,” while concurring with his assessment “…the current pathway looks more like 3 degrees Celsius of warming than the 2 degrees or lower advocated in Paris.” A scenario to avoid exceeding +2C is presented in my paper, "How action on climate change could benefit US natural gas producers, but not without federal mandates," to be published in the AAPG Bulletin in early 2020 and available in preliminary version at http://archives.datapages.com/data/bulletns/aop/2019-10-07/images/aapgbltn18031aop.pdf . If the industry surrenders to the premise that a +3C world is unavoidable, I feel Mr. Anderson’s hope that it can be judged as “…part of the solution” is unlikely to be fulfilled. As noted by Mr. Anderson, every nation (except now the US) has agreed to the 2C or lower goal. The petroleum industry and geologists in general are problem solvers. If Mr. Anderson wants new geoscientists “…to be passionate about this industry…” then I suggest he set a goal that leads them to a planet as hospitable as the one we were blessed with. James M. Rine, Ph.D. Adjunct Professor Wayne State University Detroit, MI
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11/6/2019 12:30:16 PM

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