Sector Overview of Oil and Gas

Topics: Petroleum, Peak oil, Natural gas Pages: 17 (5468 words) Published: January 19, 2013
Sector overview

1. Importance of oil and gas sector in world economy
I shall focus on the oil and gas industry. Oil has been the world’s major commercial energy source for many decades and the consensus view is that it will maintain this leading role well into the 21st century. The pre-eminence of oil has run in parallel with the massive economic advances made in the 20th century and on into the 21st century. It is estimated that industrial production grew by around 50 times during the last century and that four-fifths of this growth happened in the second half of the century, starting with the reconstruction period after the Second World War. Most of the consumption has been concentrated in the OECD countries, although this is beginning to change now, with higher growth rates in the developing countries, including China. Oil dominated the world energy mix after the Second World War, with the OECD accounting for 60–70 per cent of world oil consumption. Total and per capita energy consumption were much lower in the developing countries throughout this period, although this trend is now beginning to change. In both regions, there has been a steady increase in the use of gas. Currently, oil accounts for around 40 per cent of the world energy mix. This is because of its unique combination of attributes — sufficiency, accessibility, versatility, eases of transport and, in many areas, low costs. These have been complemented by a multitude of practical benefits that can be gained in an established infrastructure from decades of intensive exploitation and use in the industrial, commercial and domestic fields. Advances in technology make oil a cleaner, safer and more efficient fuel. There should be plenty of oil around for decades to come. The world’s oil resource base is not a constraint, with regard to meeting future demand. If we look at cumulative production, as a percentage of the estimated resource base, over the past four decades, we see that this has been relatively stable, and this is likely to remain the case for the foreseeable future. Over and above the world’s proven crude oil reserves, there is still plenty of oil that has yet to be discovered, in regions whose geological structures suggest a high probability of commercially viable reserves. The world’s proven reserves alone — of around 1,100 billion barrels — will be enough to meet demand for around 45 years, at current production rates, in simple mathematical terms. However, in practice, the situation is more optimistic than this. To begin with, production will not suddenly stop at a finite point; instead, there is likely to be a gradual transitional phase lasting many decades, as occurred when the world moved from the coal era to the oil era. Also, while, on the one hand, annual output is forecast to rise steadily in the early 21st century, on the other hand, recovery rates will also improve, through enhanced technology, improved infrastructure and better accessibility. Moreover, there is “unconventional oil”, such as tar sands, oil shale and heavy oil, and exploitation of this is expected to rise steadily in the future. Gas currently accounts for around 23 per cent of the world’s commercial energy mix. Gas is the source of commercial energy most favored by environmentalists, as well as being a reliable and highly efficient source of power generation. Production costs are coming down too. But the transportation of gas remains expensive. As with oil, there are enough gas resources in the world to meet demand for generations to come. Let us see now how the situation may develop in the future, using the reference case from OPEC’s World Energy Model. Our projections show global oil demand rising by 38 million barrels a day to 115 mb/d by 2025 — an annual average growth rate of 1.7 per cent. Around four-fifths of the world’s proven crude oil reserves are located in OPEC’s Member Countries. Moreover, these reserves are more accessible and cheaper to exploit than...
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