ADIPEC Roundtable Whitepaper

ENERGY TRENDS, POLICY FORMATION AND GEOPOLITICAL
FACTORS AFFECTING THE GLOBAL OIL AND GAS INDUSTRY
ROUNDTABLE HOST
Jason Bordoff
Professor of Professional
Practice in International
and Public Affairs
Founding Director, Center
on Global Energy Policy
Columbia University
The global oil and gas industry is at a crossroads. Consumption patterns are
changing and new sources of energy supply are disrupting the market and
depressing prices. The industry is also being challenged to decarbonise,
while at the same time it is expected to eradicate energy poverty and meet
increasing global demand for energy. Producers are asking what it will take
for them to survive and thrive in the new energy system.
In the first decade of the 21st century, the United States’ shale industry has
been a game changer, with the United States effectively replacing Saudi
Arabia as the industry’s swing producer. Shale production has tipped oil
markets into oversupply triggering a new era of low oil prices. America’s
oil output has more than doubled since 2010, crossing 12 million barrels
a day to become the world’s biggest oil producer. New supply is also
due onstream in Canada, Iraq and parts of Africa and new technologies
delivering operational efficiencies and enhanced performance are making it
possible for producers to extract more oil and gas from mature fields in the
Middle East and elsewhere.
Nevertheless, despite this short term supply abundance, the long term
outlook for energy demand is robust, driven by increased power demand,
rising global populations, the growth in the middle classes and greater
consumer demand for every day goods produced using hydrocarbons.
Given the advancing impacts of climate change, a significant disjuncture is
emerging -- the contrast between sustained demand and the need to reduce
global greenhouse gas emissions.
Although the take-up of renewables is rapidly increasing, serious issues related to reliability and energy storage,
remain. Faced with rising energy demand, oil and gas producers need to continue to invest and explore and
develop new fields, but their access to capital is likely to be more constrained by financial institutions under
pressure to decarbonise their assets. Business as usual can continue only as long as people allow the current
policies to remain in place, which seems increasingly unlikely.
The extent to which oil and gas remains relevant in the future depends on how the industry responds to two
main issues: methane and carbon dioxide emissions. Methane drives 25 per cent of the warming of our planet,
and half of that comes from leakage, venting, and flaring in the oil and gas industry. If the industry can address
methane flaring promptly, it will show that it can be an effective partner in climate action. Tackling carbon dioxide
emissions is more challenging and carbon capture will have a crucial role to play in the future. But as it stands,
not enough investment is being directed towards it.
International oil companies can respond to these transformational trends by turning themselves into broadbased
energy companies with investments in renewables, biofuels and electric transportation. For national oil
companies, whose assets are in the ground, the challenge is somewhat different. They must ask themselves
how can they ensure their oil and gas is still sellable in the future? The answer will probably include an increasing
focus on liquefied natural gas (LNG), carbon capture and storage, petrochemicals, and maybe hydrogen.
The key question for the energy industry is how to manage this transition in a structured way – or delay it and be
forced to deal with abrupt change?
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