w1v1 - energy scene - handout.pdf

Oil & Gas From exploration to distribution Week 1 V01 The energy scene Arash Farnoosh

W1V1 The energy scene p. 1 IFPEN - IFP School 2015 / TOTAL SA 2015 / IFP Training 2015

Introduction During this session, we will try to understand why the oil and natural gas energies are dominant in the global energy mix today, and why they will probably remain our main resources in the years to come. Energy consumption growth Human development is closely linked to energy consumption. Humans, since the dawn of time, have been able to master different forms of energy and transform them to improve their quality of life. Our ancestors had to rely on limited resources like muscle power, wood or water mills. While today, the energy mix is a trade-off between multiple sources, as we are able to convert them in many ways in order to power high-consuming societies. If we observe what happened during the last century, population, economic wealth and energy consumption grew almost without any interruption, one influencing the others, and vice-versa. Global population was 1.6 billion in nineteen hundred (1900), 2.5 billion fifty years later, and we are more than 7 billion human beings today. Wealth, estimated by the gross domestic product in real value, has been multiplied by a factor of 40 over the same period . Energy consumption has been both a support and a consequence of this growth, rising from slightly less than 1 billion tons of oil equivalent in nineteen hundred (1900), to almost 13 billion tons today.


However, there is not one single type of energy but several, that compete with, and complement one another to satisfy our different needs. Nutrients contained in food, were probably the first energy resources, powering human muscles to perform the basic subsistence activities. Humans may have used the first extra-somatic energy conversion about eight hundred thousand years ago (800 000), by mastering the control of fire. Since then, there have been many energy revolutions. Just take a look at the last hundred years. Coal replaced wood as a more efficient resource to power steam machines. Then oil became the leading fuel in support of the automobile boom. After the first oil shock in 1973, and the second one in 1979, that multiplied the price of oil by 10, natural gas and electricity supply, increased their share in the global energy mix. But energy systems require heavy infrastructures, therefore they require time to evolve. Due to this inertia, the mix will not change rapidly and fossil resources will remain the dominant fuels in the energy mix for many years ahead.

Oil & natural gas in todays energy mix How the energy mix is shaped today? In 2013, oil accounted for one third of the global primary energy consumption, coal for 30%, and natural gas for almost 24%. Then come electricity resources, such as hydro for 7%, nuclear energy for 4%, and modern renewable energies such as wind, geothermal and solar for only 2%.


But the primary energy, the energy as found in nature, needs to be processed, and transported before being available for end-users. From the 13 billion tons of oil equivalent of primary energy, we get only 9 billion tons in final energy, after withdrawing transformation and transmission losses. Fossil resources remain dominant in the mix, because so far, they appear to be the most economic and efficient energy sources for our main uses. Heat, that accounts for more than half of our needs, is mainly satisfied by oil or natural gas. Transport, which is almost one third of the global energy demand relies almost entirely on oil, while coal is the main source for electricity, which represents 15% of the final energy consumption.


Reserves, production & consumption And fossil resources are here to stay in the future. Based on our current consumption, proven oil reserves can still satisfy our needs for the next 53 years, natural gas for 55. In the meantime, new discoveries are made every day, pushing back the often predicted, but yet to be seen, end of fossil fuels. Moreover, we have to keep in mind that reserves depend on the price. As the oil price goes up, more resources become profitable to extract from the ground and are added to the global proven reserves.

What may be coming to an end however is the easy oil. By easy oil, I mean the reserves easy to find, easy to extract from the ground and easy to transform into ready-to-consume products. Since the mid-20th century, the most important oil and natural gas reserves have been discovered in the Middle East. This region, led by Saudi Arabia, Iran, Iraq, Kuwait and the UAE represents almost half of the worlds proven oil reserves. For natural gas, notably thanks to Iran and Qatar, the Middle East holds 43% of the global reserves. But for countries such as Venezuela and Canada, reserves have been recently re-assessed and have increased dramatically. They now rank first and third for proven oil reserves. The most recent oil discoveries have been made in unfamiliar locations. For instance in Brazil with ultra-deep offshore pre-salt reservoirs, or in Northern America with tight-oil regions. During the last 5 years, almost 30% of the global oil & gas discoveries have been made in Sub-Saharan Africa. The oil price increase in the past decade and the development of new extraction techniques have made some resources profitable to produce, changing the overall reserves landscape.


Energy trade flows But holding reserves is not what fuels our economies. It is the oil & natural gas extracted from the ground and effectively produced that does. Once a field has been discovered, economists assess the expected profitability of the project, based on the cost of development, estimated by engineers, and on scenarios of oil price over the lifetime of the project. The largest reserve-holders are not necessarily the largest producing countries. Venezuela, that holds the largest reserves in the world, only ranks 11th in production. Conversely, the US, that holds only 2.6% of the worlds reserves, is currently the top producer. Besides, oil is not necessarily produced where it is consumed. Saudi Arabia, Russia and the United States are the 3 main producers, but only the US is among the top 3 consumers, along with China and Japan.


Therefore, two thirds of the oil produced is for export. The main exporting regions are the Middle East, the Former Soviet Union, and West Africa. The main regions relying on foreign imports for their oil supply, are Europe, China, and the United States. Although the US, has recently reduced its imports with the local development of unconventional production.


You can see on this map that crude oil is a genuine global commodity. It is a product so important for the economy that very few regions are excluded from the international oil market. But definitely, the Middle-East still remains a key area for consuming countries, especially those in Asia.

Conclusion transition markets To extract crude oil or natural gas from underground and transform it into usable petroleum products, ready to satisfy the final consumer needs, the oil & gas industry needs efficient markets capable of connecting supply and demand from everywhere in the world in the most optimal way. This is a crucial step along the oil & natural gas chain.
