The energy transition may cause uncertainty in the US$14 trillion upstream oil and gas assets

Date: May 21, 2021    Source: http://www.cableabc.com/

According to the latest report by Wood Mackenzie, the energy transition has brought uncertainty to upstream oil and gas assets worth 14 trillion U.S. dollars. These assets have long relied on unlimited growth in demand to offset risks, despite the increase in demand this year due to the epidemic.

As the world recovers from the COVID-19 pandemic, oil and gas demand will exceed the record 160 million barrels of oil equivalent per day in 2019.

Wood Mackenzie said: "After six years of weak prices, the upstream is healthier and leaner than ever before." Oil demand may continue to grow for ten years or more. On the other hand, if the world takes decisive action to limit global warming to less than 2 degrees Celsius by 2050, oil demand will decline rapidly in the latter part of the decade.

Wood Mackenzie estimates that the range of upstream pre-tax future valuations is staggering, at US$14 trillion (increased from US$9 trillion to US$23 trillion). On an after-tax basis, operators’ share of economic rents ranges from US$3 trillion to US$9 trillion.

By 2050, the energy transition will keep oil demand above 90 million barrels per day, which encourages investment in more expensive supplies and supports oil prices above $80 per barrel by 2030. However, if the world decides to limit global warming to less than 2°C by 2050, oil demand will peak before 2025 and will drop to 35 million barrels per day by 2050, which is 70% below the peak level. By 2030, the average price of Brent crude oil will be US$40 per barrel and will decline thereafter.

In both cases, with the support of Asian coal replacement, natural gas demand and prices will remain elastic, he added that this will attract more investment in natural gas production rather than oil.

Fraser McKay, vice president of WoodMac, said, “The industry now finds itself having to supply oil and gas to a world where future demand and prices are highly uncertain. The range of possible results is surprising. However, in the coming decades, the world will still need oil and gas supplies, and the scale of this industry will remain huge. "

In all aspects of the upstream value chain, delivery and fulfillment are critical, as the macro

environment for oil and gas is becoming more and more severe. The industry needs to make unremitting efforts to improve efficiency, reduce costs and deliver projects flawlessly. Oil and gas companies need to send a strong signal to stakeholders that they can become reliable capital managers.