Prospects for Energy Security Look Positive According to Occidental's Presentation on Oil and Gas Investment

The oil and gas sector has been severely destabilized by the pandemic that hit in 2020–2021, the recovery that followed in 2021, and the Russian invasion of Ukraine in 2022. What will 2023 come out of this chaos? Shauna Noonan from Occidental University provided a well-thought-out response. The solution is consoling to the sector but upsetting to those who believe in climate change.

Shauna Noonan, Fellow and Senior Director International and Gulf of Mexico Supply Chain Management at Occidental Petroleum (OXY, -0.7%), made these forecasts during a monthly NSI webinar.

The cost of gas and oil in 2023 was one projection. The second was for international CapEx (long-term capital spending by oil and gas industry).

Global energy demand by fuel type, with forecasts through 2045, was the subject of a third prediction. This features a few surprises and demonstrates how much fossil energy is falling in comparison to renewable energy.

Price of oil and gas predictions for 2023

Oil will continue to be expensive (Figure 1), indicating rising demand on a global scale. This is true despite an exponential increase in electric cars (EVs) worldwide, which will result in less transportation using gasoline, the main consumer of crude oil. Speaking of gasoline, it will now cost roughly 12% less than in 2022, which is good news for US drivers.

Although the price of natural gas in its gaseous form will have fallen to $5.43/MMBtu, it will continue to be higher than the long-term average for the previous ten years.

However, shipments of LNG (liquefied natural gas) would soar by 16% to 12.3 Bcf (billion cubic feet per day). This is in reaction to significant demand from Southeast Asia as well as demand from Europe because to the conflict in the Ukraine.

According to the EIA, US crude output will increase to a record 12.3 MMbpd (million barrels per day), surpassing the previous peak in 2019.

Climate scientists, including those in the IPCC who speak for the UN, will be outraged by this scenario since they have long held the view that the world has to stop using fossil fuels soon, or at the very least, to stop boosting oil production globally. They base their argument on the fact that over 50% of the greenhouse gas (GHG) emissions that contribute to global warming are produced by the world's oil and gas industry.

Greenfield CapEx predictions - global

One kind of international business endeavor in which a firm may build its own completely new facilities from scratch is known as a "greenfield investment," notably by multinational corporations. Contrarily, brownfield investments take place when a business rents or buys an old building.

The data does contain shale plays like those in the Permian region of the US, despite the word "conventional" in Figure 2's title.

Rystad Energy is listed as the source of the graph in Figure 2. First off, based on total spending exceeding that of 2019, the previous peak, 2023 appears to be a comeback year (Figure 2). The fact that offshore CapEx (double blue) surpasses onshore CapEx is remarkable (green).

Spending domestically is still lower than it was in 2019, when the US's shale boom was in full gear. One argument is the purposeful slowdown of US shale growth to boost shareholders' and investors' profit margins. Another factor is that offshore oil and gas well declines occur more gradually than those of onshore shale developments.

Businesses in Southeast Asia, including Vietnam, will be the main drivers of the significant increase in offshore expenditure in 2023. The Middle East is expected to experience another uptick. One company, Chevron CVX +0.3%, will invest 25% of its budget on offshore assets in 2023. All of this means that, for 2023, foreign expenditure will outpace domestic spending in the US.

It is evident that long-term investment in new oil and gas ventures is active and thriving.

Oil and gas in future energy mix

Let's take a look at the global energy forecast from 2021 to 2045. Figure 3's overall energy output would rise by 23%, from 285 to 351 MMboe/d (million barrels of oil equivalent per day).

This would be due to two factors: (1) an increasing global population; and (2) a greater proportion of people who are middle-class. However, take notice that according to SPE, this 23% growth is less than a 47% increase until 2050. (Society of Petroleum Engineers).

The main issue is seen in Figure 3. The main objectives of the oil and gas sector are to maintain profitability and employment. However, climate conservationists worry that if GHG emissions are not reined in, an overheating planet may trigger climatic disasters. As a result, major emission reduction measures are required immediately. A good place to start is with the oil and gas sector because of its excessive GHG emissions.

The cost of solar, wind, and storage batteries would rise by more than 7% annually at the opposite bookend.

Biomass, hydro, and nuclear power would all rise, although by less than 2% annually. The annual growth rates for oil and gas are both positive but somewhat lower at 0.5% and 1%, respectively. Oil demand will increase slightly, then stay constant from 2030 to 2045, but gas demand will rise rapidly from 2021 to 2045. As shown by earlier estimates, there wouldn't be a decrease in oil use.

The fuel share by 2045 would be 11% for solar and wind energy and 10% for biomass, which is one last eye-catcher. Oil and gas would both exceed this at 29% and 24%, respectively, for all fossil fuels.

Oil, gas, and coal make up all of the fossil fuels that make up the world's total energy consumption, which is 70%. This is at least 20% higher than earlier estimates from other reliable forecasters. And that isn't much less than the current contribution of fossil fuels, which is close to 80%.