DRILLING OUTLOOK
Oil and gas projects draw
renewed interest from investors
amid energy supply shortfall
Companies that can diversify, embrace
transparency in sustainability and continue
focus on capital discipline likely to be favored
BY STEPHEN WHITFIELD, ASSOCIATE EDITOR
Geopolitical events of the past year, and
the resulting supply shortfall that has
gripped much of the Western world, have
placed energy security back in the fore-
front for a number of countries. The inves-
tor community has taken notice. While
the “energy transition” continues – with
governments around the world imple-
menting policies that aim to replace fossil
fuels with renewable energy – the process
remains gradual.
The supply shortfall, on the other hand,
is an immediate concern that could have
long-term global impact. Investors have
come to realize what operators and drill-
ers have known all along: Oil and gas will
continue to play a major role in the global
energy mix for years to come.
“We are not at a point where renewables
can completely fuel the needs of the world.
It’s a long way to go,” said Seenu Akunuri,
Energy, Utilities and Resources Deals
Leader at PricewaterhouseCoopers (PwC).
“Even though certain investors might say
they’re not going to focus on fossil fuels
and will focus on renewables going for-
ward, at the end of the day, when you look
at global energy needs, for the next 10,
20, 30 years, worldwide consumption for
hydrocarbons is going to continue.”
Still, the next few decades bring with
them a ton of uncertainty. Just how big of
a role will oil and gas play in the energy
mix? What will companies need to do to
draw interest from an investment com-
munity that, despite its recognition of the
importance of oil and gas, is still under
public pressure to move away from sup-
porting the industry? For this story, DC
spoke with analysts to gauge what the
transition to net-zero could mean in the
coming years.
Embracing sustainability
Pat Jelinek, Americas Oil and Gas
Leader, US West Energy and Resources
Market Segment Leader at Ernst & Young
(EY), noted that the exact role of oil and
gas in a low-carbon economy is uncertain.
EY outlined four scenarios covering the
range of possible scenarios for the energy
transition, from a very gradual move away
from hydrocarbons to the rapid adoption
of renewables:
■ Meet Me in Paris: Alternative energy
quickly becomes cheap enough to displace
existing energy infrastructure. In this sce-
nario, peak oil has already happened in
2022, and demand will fall steadily after
that. However, EY says this scenario is
unlikely, as demand is still expected to
increase next year. In fact, the US Energy
Information Administration is forecast-
ing global consumption of petroleum and
liquid fuels to increase by 2 million bbl/
day in 2023.
■ Slow Peak: Peak oil does not happen
until 2047, thanks to developing coun-
tries’ demand for petrochemicals, energy-
intense industrial usage and aviation.
■ Critical Gas: Oil demand peaks and trails
off in 2037 as consumers migrate to elec-
tric vehicles. Capital moves toward gas-
focused upstream and LNG assets.
■ The Long Goodbye: Oil demand peaks
in 2040 and continues at the same level
through 2050, as oil consumption from
existing vehicles, consumer inertia and
continued growth in aviation and petro-
chemicals keep demand stable.
While these scenarios describe very
different outcomes, they do share a few
trends. For example, natural gas, in com-
bination with renewables, will help drive
decarbonization. This will create a signifi-
cant upside for gas as a power-generation
fuel, although projections for natural gas
demand vary wildly. In the “Meet Me in
Paris” scenario, gas demand grows by 42
billion cu ft/day between 2022 and 2050,
a rate of 0.3% per year, compared with
growth rates of 285 billion cu ft/day in
“Long Goodbye” and 613 billion cu ft/day in
“Critical Gas.”
It’s important to note that investors
should see positive returns on their oil and
gas projects regardless of the energy tran-
sition scenario, Mr Jelinek said. This is
In each of Ernst & Young’s four energy transition scenarios, the global energy market will see peak oil demand sometime in
the next 25 years, although the estimated time frame ranges from 2022 all the way out to 2047. The scenarios also illustrate
significantly different demand for natural gas as a power-generation fuel, with up to 613 billion cu ft/day of growth between
2022 and 2050 under the “Critical Gas” scenario and only 42 billion cu ft/day of growth under “Meet Me in Paris.” EY has said
the “Meet Me in Paris” scenario is unlikely, however, with oil and gas demand both expected to increase next year.
22 NOVEMBER/DECEMBER 2022 • DRILLING CONTRACTOR