The IHS Markit team gathered in a panel to share reflections from things they heard this week at 2018 CERAWeek. James Burkhard noted that confidence is returning to the oil markets. The new math of oil is that the US is a swing producer for the world with price being the lever in supply. The other big news is the big transition going on from oil-based transportation fuel to electric-based transportation. This will have big impact on oil demand going forward. Electric vehicles (EVs) make up 1.3
bmillion [thanks for correction Harry Forbes] cars on the road, 0.2% of the total cars on the road. These vehicles have displaced 50,000 barrels of oil per day. As this share grows, it will have impact on both global oil demand and the electrical power grid infrastructure to recharge these vehicles.
Analyst Raoul LeBlanc provided an update on shale production discussions. There were some large disagreements among different panel sessions about just how much production level and life is possible in the Permian Basin in Texas and New Mexico. Other shale plays around the globe look promising and there is growing interest to begin to develop. The U.S. grew production by one million barrels in 2017 and is expected to grow another one million barrels in 2018. With current prices in the $60s, the projects remain profitable. If the US producers stopped drilling today in the shale region, production would decline 2.5 million barrels per day (BPD) in a year. Total US production is 10 million BPD and is expected to grow to an all-time high of 11 million BPD. There is also contrasting strategies for offshore vs. shale producers. Offshore producers are trying to drive more costs out of the exploration and production process. Onshore shale producers are trying to get more productivity from the subservice to increase the amount of recovery per drilling and completion of the wells.
From a gas perspective, Shankari Srinivasan noted that optimism abounds. The trend from internal combustion to electric-based transportation is to the global gas market’s benefit. Gas is replacing coal as a source of dispatchable power, which means a non-intermittent source to the grid. She noted that liquefied natural gas (LNG) producers continue to get more efficient and flexible to supply to spot global demand.
Jone-Lin Wang noted that the power markets are actively working to de-carbonize their fuel sources for electrical production. There is also optimism that hydrogen fusion can become a source of dispatchable power over the next decade. At the same time resiliency is a big concern as the percentage of intermittent sources of power connects to the grid. The plants that provide base load to the grid must swing to handle these supply changes putting thermal stress on the electrical power generating assets. There is a natural synergy between natural gas and renewables with natural gas being the lowest carbon emitting source of the fossil fuels and supplying base and peak load generation. Storage from batteries is still not economic, so breakthrough technologies must still emerge to solve the issue of intermittent, renewable sources of energy.
Susan Farrell noted that climate discusses pervaded across all the energy sectors—oil, gas, coal and electrical power generation. Much work is being done on the finding ways to reduce carbon emissions. The costs of oil exploration and production continue to drop as technology and changing work practices continue to pull costs out.
Panel moderator Atul Arya closed the panel by noting that we are clearly in a time of energy transition and the reconfiguring of strategies to adapt to these transitions. Advancing technologies will grow in importance as a key enabler in executing these strategies.