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“We are entering an interesting period in the upstream industry” – Andrew Latham

  • More difficult days await the upstream sector

Only 28% of resources in undeveloped fields, says Wood Mackenzie’s analysts in an email, are low-cost, low carbon “advantaged” barrels, so upstream industry must look to exploration, decarbonisation and alternative fuels to meet energy transition goals.

For this group of research analysts, the energy transition would require oil and gas for decades to come, but the supply of lower-cost, lower-carbon “advantaged” barrels would remain scarce, endangering emissions targets and causing upstream providers to navigate as well as adopt to new strategies, Wood’s “Scraping the Barrel” had posited. In terms of the overall supply, the analysts concluded that total discovered and prospective oil and gas resources would more than double the projected demand in 2050. However, and for them also, the truly advantaged resources, with low breakeven (resilience to low prices and emissions sustainability) would be nothing less than anything but plentiful.

The analysts have opined that most developed fields have little or nothing to offer as only 28% of the resources in commercial undeveloped fields, (approximately about 49 billion barrels of oil equivalent (boe), were critical in terms of breakeven below US$30 Brent, with yet emissions intensity of less than 20 kgCO2e/boe.

“We see enough advantaged resources to satisfy only about half of our base-case oil and gas demand forecast to 2050,” says Andrew Latham, Vice President, Energy Research at Wood’s Upstream.

“Even our much lower AET-1.5 demand scenario – which lays out what is needed to achieve the most ambitious targets of the Paris Agreement by keeping emissions within 1.5 °C of pre-industrial levels and reaching global net zero by 2050 – will require some disadvantaged supply”, Andrew said.

Oil demand, under Wood Mackenzie’s base Energy Transition Outlook (ETO), would be expected to peak in 2030 and thereafter decline so slowly to 94 million barrels per day (b/d) in 2050. The AET 1.5 requires 20 million b/d lower than the ETO by 2035, but will still be 33 million b/d by 2050, report says. Adding that under the ETO scenario, gas demand will be 88 million boe/d in 2050, some 12% higher than the current prize, while under the AET-1.5 scenario, gas demand in 2050 will fall to 59 million boe/d.

Wood’s Lens and Exploration Service mechanism was also reported to have shown that discovered resource would not exclude onstream fields, undeveloped commercial but not viable fields, while less attention would be paid to resource growth from appraisal upside and improved recovery.

It said that new exploration, decarbonization technologies and biofuels would deliver some relief, with few advantaged resources in brownfields and undeveloped fields, even as exploration is likely to play a key role in locating and increasing this supply.

Noting that between 2012 and 2022, the industry discovered 228 billion boe in new fields, with an average emissions intensity of 16 kgCO2e/boe, against the current global average of 23 kgCO2e/boe (19 kgCO2e/boe for undeveloped fields), with weighted average cost of supply in Brent price terms left just at US$33/bbl.

Latham added, “We expect high-impact exploration to be an important source of new resource for as long as demand remains at or near our ETO trajectory. Recent results suggest a contribution of around 5-10 billion boe of new advantaged barrels a year. Most will be found within energy super basins. Exploration on this scale over the next two decades will add oil and gas supply of around 10-15 million boe a day by 2050.”

Stating that decarbonization technologies and biofuels could play an even bigger role, as bio-based diesel and aviation fuels from plant-based feedstock tends to emit 80% less carbon than the crude oil-based products that dominate today’s oil market, this is as Wood Mackenzie projects up to 20 million barrels daily (b/d) by 2050.

“This is really a wake-up call for the industry and for the overall energy transition outlook,” Latham said. “These are avenues that help alleviate advantaged supply pressures, but it is definitely going to be an uphill struggle.”

Even though these strategies are likely to help address the scenario as painted above, Wood’s research team still believes that it was not going to be rosy companies to find and produce the advantaged barrels needed to meet base ETO demand.

Latham, while concluding that it would be very difficult for advantaged resources alone to meet all ETO oil and gas demand said: “We are entering an interesting period in the upstream industry. Some companies will double down and hope for less competition in the sector. However, many may begin or accelerate their exit from the sector to pursue low-carbon energies and renewables. If this is the case, security of supply may become threatened, and, unfortunately, we may see companies turning to disadvantaged resources to meet demand.”



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