Adipec 2016: Oil and gas industry must stay flexible and innovate but no doubt about its importance

The oil and gas industry, the lifeblood of many economies around the globe, is in the midst of a turbulent cycle that commenced in mid-2014. At Adipec this week there will be widespread debate as to whether the industry’s downturn resembles former episodes or is driven by a more deep-seated structural shift that could, potentially, significantly transform the fundamentals of supply and demand. There is no doubt that the latest technological revolutions, such as the application of hydraulic fracturing for shale resources – also known as unconventional resources – in North America and, potentially, other places around the globe, have contributed tremendously to opening up new sources of petroleum supplies. This, in turn, has also presented our industry with unprecedented levels of supply flexibility. The United States today, as a result of additional supplies from the shale resources, has become one of the largest gas producers in the world; it has also increased its oil production by more than 4.5 million barrels per day in the past few years. Yet the recent collapse in oil prices exposed unconventional resources to major challenges because of their high cost of development. As a result, US oil production has declined by 1 million barrels per day since mid-2015. On the other side of the supply-demand equation, oil demand is expected to keep growing globally although it is declining in the OECD (Organisation for Economic Cooperation and Development) countries, driven by fuel-efficiency gains and changes in individual transport preferences. Demand growth remains healthy in Asia, particularly from China and India, and is driving expected global oil demand growth of 1 per cent for the short and medium terms. In the long run, the industry faces many crucial challenges, not least those associated with climate change mitigation; fossil fuel consumption could potentially be affected over the next 10 to 20 years by government policies and regulations, and the imminent and potentially structural change to the transport sector from the widespread introduction of electric cars. Nonetheless, even with all the changes we see emerging in the transport sector, the unpredictability of world economic growth and the increase in renewables, fossil fuels will remain the mainstay in meeting global energy demand and will still account for almost 80 per cent of total energy supplies in 2035, according to forecasts from the International Energy Agency. Consequently, how can the oil and gas industry evolve and adapt to the change in a future economic landscape and government policies? Significant efforts are made by international and national oil companies to invest in technologies and practices to reduce carbon emissions. The announcement on Friday last week that the companies forming the Oil and Gas Climate Initiative will, together, invest US$1 billion over the next 10 years to develop and accelerate the commercial deployment of innovative low emissions technologies is a significant step. The industry, more widely, also needs to expand investment in carbon capture from power plants and industrial areas. Technologies of that sort will reshape the oil and gas industry, enabling it to continue as a sustainable engine of economic prosperity with a reduced environmental footprint. The Government of Abu Dhabi, through its domestic oil and gas industry, has taken an effective role to reduce carbon emissions by leading regional-first initiatives. Recently, Adnoc announced the Al Reyadah project, which is designed to capture carbon dioxide from industrial areas and reinject it in onshore fields, increasing production while curbing carbon emissions. Moreover, strict regulations have been put in place to limit the burning off of associated gas, or flaring, which has been a regular practice and, over time, a growing issue for the industry in many parts of the world. Recent studies estimate, around the globe, gas flared at oil production sites amounts to about 13.7 billion cubic feet per day of natural gas, generating the equivalent carbon emissions produced by 175,000 cars into the atmosphere every day. Reducing carbon emissions through the restriction of such gas flaring offers a relatively quick and significant step towards achieving a cleaner, sustainable environment. Abu Dhabi has embraced a long-term vision since the early 1990s to reduce gas flaring to absolute minimum levels. Before that, in the middle of the 1970s, the emirate initiated another important strategy, which involved gathering associated gas offshore Abu Dhabi and liquefying it for export to the Asian markets, one of the first projects of its kind in the Middle East. Through Mubadala, Abu Dhabi has also contributed to delivering cleaner-burning natural gas via the Dolphin Project to fuel economic growth across the UAE, and also establish Masdar as a global leader in renewable energy, with substantial solar and wind generation projects both here in the Middle East and elsewhere. Abu Dhabi is regarded as a leader in the industry in taking such initiatives to create a clean and sustainable environment and contribute to solid economic development for oil-rich nations. There is no doubt that the oil and gas industry will continue to be a very important contributor in fulfilling the world’s energy needs for decades to come, but it will undoubtedly operate in more complex conditions and in a constantly changing business and regulatory environment. The industry needs to continue to be innovative and flexible in its technology and practices and, ultimately, adopt and contribute to the highest standards of global sustainability. Musabbeh Al Kaabi is the chief executive of Mubadala Petroleum business@thenational.ae Follow The National's Business section on Twitter __________________________________ ABU DHABI OIL, Adipec 2016: The National's full coverage ■ Opec's Barkindo urges oil producers to reach agreement on output ■ Cepsa makes case for part in Borouge petrochemicals expansion ■ Total backs Adnoc on production increases at Bab onshore field ■ Dearth of energy investment could trigger soaring oil prices, says UAE Energy Minister ■ Adnoc and Occidental boosting Al Hosn to meet local gas demand __________________________________

Adipec 2016: Oil and gas industry must stay flexible and innovate but no doubt about its importance

The latest in energy technology, such as shale drilling, has presented the industry with unprecedented levels of supply flexibility. It must evolve and adapt to adjust to this new paradigm.