By extending the availability of software across on-premise installations, on-demand deployments and mobile devices, SAP enables people at the office or in the field to work more efficiently and use business insight more effectively. People create and sustain change. Stakeholder strategies. One company replaced the seals in pressure-safety valves, which had been found to be a frequent source of leaks, and then was able to monetize these streams of saved or captured gas. One option is to implement initiatives that offset emissions by tapping into natural carbon sinks, including oceans, plants, forests, and soil; these remove GHGs from the atmosphere and reduce their concentration in the air. Process changes and minor adjustments that help companies reduce their energy consumption will promote the least expensive abatement options. Gabriel Popkin, “Weighing the world’s trees,” Nature, June 30, 2015, nature.com. Reducing nonroutine flaring through improved reliability. What is the investment case? And fast. Rebalancing portfolios. Cutting emissions is not necessarily expensive. The spread of this virus has forced many oil and gas … The cartel delivered some holiday cheer by extending and deepening their output cuts. With the oil shock of 2009 and the much deeper price collapse of 2014, larger African gas discoveries, and the US shale industry, oil discoveries have diminished on the continent. Are new sources of funds available? While some flaring may be unavoidable, the capacity constraints of infrastructure can lead to more than either companies or the public might want. Already, many companies have adopted techniques that can substantially decarbonize operations—for example, improved maintenance routines to reduce intermittent flaring and vapor-recovery units to reduce methane leaks (Exhibit 3). High-temperature electric cracking. Demand - After a 4% drop in 2020, natural gas demand is expected to progressively recover in 2021 as consumption returns close to its pre-crisis level in mature markets, while emerging markets benefit from economic rebound and lower natural gas prices. Flip the odds. Replacing some conventional-oil feedstocks in refineries with biobased feedstocks or recycled-plastic materials (initially, through pyrolysis or gasification) would also reduce emissions—not only Scope 1 but also, to a large extent, Scope 3 emissions. 6 Practical resources to help leaders navigate to the next normal: guides, tools, checklists, interviews and more, Learn what it means for you, and meet the people who create it, Inspire, empower, and sustain action that leads to the economic development of Black communities across the globe. Companies are at different stages of preparing their GHG-reduction plans: some are ready to act, others are just getting started. In the United States, the cost of solar—both photovoltaics (PV) and utility scale—has fallen more than 70 percent since 2011, and the cost of wind by almost two-thirds. Energy transition. Moreover, the economics are sensitive to the price of electricity compared with gas and to the options for selling the fuel gas. What are the targets over the next three to five and five to ten years, as well as to 2050? An additional 16 billion cubic feet a day (bcf/d) of planned capacity increases on pipelines from the Permian to the Gulf Coast is now under discussion. That business model justifies the installation. 5. Changing power sources. The oil and gas industry faces an unprecedented shift in its workforce as automation and artificial intelligence (AI) continue to transform the way companies operate. And shedding offices could also be an essential way to save money going forward. With a pandemic-induced demand crash, the uncertainty about the long-term prospects for gas is growing. The oil market continues to be well supplied into 2020, therefore OPEC+ members have little choice but to continue production restraint. The winners of tomorrow will extend beyond the barrel and invest in renewables, digitization and diversification today. You may opt-out by, Storytelling and expertise from marketers, The Leukemia & Lymphoma Society BrandVoice, The Next Step | Small Business Video Series. Congress is considering a bill, known as USE IT, to support the construction of CCUS facilities and CO2 pipelines and to finance research on direct-air capture. What is the right timeline and payback period? Below, we discuss some ways in which oil and gas companies are taking action. 6. 3 “It is too early to predict what the midterm impact will be. There are also a number of demonstration and pilot projects. hereLearn more about cookies, Opens in new Increasing carbon capture, use, and storage (CCUS). The duration of COVID-19’s impact on the industry is unknown, so devising a plan to adapt and digitize now is key to emerging from this global crisis in a strong position. Although we expect renewable energy sources to take an increasing share of this mix, we forecast oil and gas to account for 44% of the world’s primary energy supply in 2050, down from 53% today. Here are questions companies should ask as they plan and execute strategies to reduce GHG emissions. Please use UP and DOWN arrow keys to review autocomplete results. What is the business case for each asset? If you would like information about this content we will be happy to work with you. And with many oil and gas companies relying on highly manual and in-person processes, this transition presented a number of speed bumps. Press enter to select and open the results on a new page. Never miss an insight. PART ONE: What’s happening right now? Travelers cancelled their trips cutting the aviation sector’s typical 11% share of oil consumption in transportation. We strive to provide individuals with disabilities equal access to our website. cookies, McKinsey_Website_Accessibility@mckinsey.com, There are 19 large-scale CCUS facilities in commercial operation. Forecasts chart divergent paths for the future. But with that said, the oil and gas industry has put in significant effort to cut supply in order to minimize the blows dealt by such a major drop in demand. How can we get investors, employees, customers, and governments to support our decarbonization agenda? With increasing pressure to reduce carbon emissions and drive renewables, the critical role of technology in Oil and Gas is only getting bigger. It's a pivotal moment for the oil industry. 2 That oil is also less emissions intensive than the conventionally extracted variety. Many European governments plan to implement binding GHG emissions targets and are drawing up national energy and climate plans. Energy 2023: The Future of Oil & Gas. Learn more about cookies, Opens in new So how do you plan during such an unstable time? Although there is still no global market, carbon taxes or trading systems cover 20 percent of worldwide emissions, compared with 15 percent in 2017, according to the World Bank. Management. In an example similar to what was previously done with crude oil prices, U.S. gross gas withdrawals would exit 2020 at only 94 Bcf/d if the industry held gas prices constant at $2.00/MMBtu and pegged WTI at $55/bbl. By replacing generators with a solar PV and battery setup, the company not only reduced emissions significantly but also broke even on its investment in five years. While the worst is most likely behind us, as governments begin reopening municipalities, an ongoing contraction from previous highs is inevitable for the foreseeable future. Now more than ever, oil and gas organizations are using technology to drive down production costs to improve margins as they fight prolonged drops in oil prices. Now, in May 2020, the economic playbook is substantially different. Addressing this challenge requires additional gas-processing facilities, as well as gathering and transport infrastructure. If the world is to come anywhere near to meeting its climate-change goals, the oil and gas (O&G) industry will have to play a big part (Exhibit 1). There is no easy way to put this; COVID-19 has been a one-two punch to the oil and gas industry from the consumer and commercial angles. Reducing fugitive emissions. CCUS costs $20/tCO2e for selected processes in the oil and gas sector but as much as $100 to $200/tCO2e in other industries, such as cement. With all feasible IEA projections of net-zero by 2050 including oil & gas in the energy mix, the industry needs act to reduce the environmental footprint of oil & gas, and provide the critical resources and skills required to tackle emissions from some of the hardest-to-abate sectors. Offices mandated professionals to log in from home, no longer requiring them to fill their tanks as often. The economics will vary greatly, depending on the option and local conditions. For example, complex reservoirs—highly viscous, in deep or ultradeep water, compartmentalized, or high pressure and temperature—may be at a structural emissions disadvantage. McKinsey Insights - Get our latest thinking on your iPhone, iPad, or Android device. Tullow further states that many African countries have adopted tighter fiscal terms, deterring exploration investments, rendering otherwise investable projects unviable at today’s oil prices. 4. Digitization and automation help cut costs in a time where many other factors are largely out of a company’s control. Most transformations fail. This article is part of a series on energy transition and decarbonization. Country-Specific Predictions: Summarizing BDO USA's Energy 2020 Vision for Oil &Gas. However, Galp, a Portuguese oil and gas company, did not have to experience these setbacks. In order for oil demand to increase, so many other industries (like travel, manufacturing and retail) will have to open first to get people and products traveling again. One company replaced gas boilers with electric steam-production systems, including high-pressure storage for nighttime steam supply, to support separation units. The operators of the future will rely AI-backed technology to assist them in the decision-making process to further sustainability goals. In refining, several pilot projects use electric coils (instead of fuel gas) to provide heat. Subscribed to {PRACTICE_NAME} email alerts. Those economics improve if investment is coordinated with the natural investment cycle to support additional capital expenditures—and, of course, if power can be purchased or generated under favorable financial terms. The solution lies in digitizing the oil and gas industry to prepare for the future of work and sustainability. Efficiency is a factor in every part of the industry, of course, but new downstream-specific technologies can make a big difference. Oil 2020 examines the key issues in demand, supply, refining and trade to 2025. “World’s largest hydrogen electrolysis in Shell’s Rhineland refinery,” ITM Power, January 18, 2019, itm-power.com. Elections and Energy Policies. And the oil and gas industry outlook reflects a rise in the production of US shale in 2020. Any company can invest in offsets. How do we align our decarbonization goals with the larger energy transition? Bloomberg New Energy Finance estimates that the cost of hydrogen could drop as much as two-thirds by 2050. Slowly, and then all at once, governments around the world were required to lower emissions and investors wanted more sustainable energy investment opportunities. Shell and ITM Power, a UK-based energy-storage and clean-fuel company, are building the world’s largest hydrogen electrolysis plant at a German refinery, with support from the European Union. Customers, employees, and investors are already starting to distinguish the leaders from the laggards. It's entirely possible that other sectors will follow this lead and save on office space in the long run. We use cookies essential for this site to function well. All Rights Reserved, This is a BETA experience. The short-term outlook is complex, as the erosion of demand caused by the COVID-19 pandemic has staggered an already challenged industry. Green hydrogen. They may be surviving this pandemic even though oil prices are plummeting, but there will always be another threat looming and growing expectations from investors to become more sustainable. Heightening employment cyclicality and layoffs are challenging the industry’s reputation as a reliable, long-term employer. The oil and gas industry is due for a rebound, but the timing is unclear. Facing the challenge of transformation for the oil and gas industry Since we published our midyear outlook in July, the global economy and capital markets have rebounded faster than expected in the third quarter of 2020. Please email us at: Planning a decarbonization strategy: Questions to ask. “State and trends of carbon pricing 2018,” World Bank Group, May 2018, worldbank.org. Please click "Accept" to help us improve its usefulness with additional cookies. What does the future look like? October 2019. 2. “The shale producer’s spending next year will drop about 15% and will not rise even if oil prices do, instead using higher returns to pay down debt” The US LNG export will rise on the back of the infrastructure growth in 2020. World Energy Outlook 2018, International Energy Agency, November 2018, iea.org. The entire energy sector, including oil & gas, must transform. Sustainability, both in terms of the environment and company longevity, are on the minds of oil and gas executives around the world. The UK Oil and Gas Authority has estimated that overall remaining recoverable resources range from 10-20bn boe. These actions not only reduced emissions but also raised production. The industry’s operations account for 9 percent of all human-made greenhouse-gas (GHG) emissions. While assessing the damage is important for moving forward, there are forward looking actions that oil and gas leaders can take now. We believe that to prepare for success in 2020 and beyond, oil & gas companies must strive to become “Lean, Green, Digital” machines. Unleash their potential. DUBLIN--(BUSINESS WIRE)--Jul 16, 2020--The "Global Oil and Gas Industry 2020 - A Complete Analysis" report has been added to ResearchAndMarkets.com's offering.The ongoing COVID-19 pandemic has hit each and every industry hard, but perhaps the one industry which has taken the biggest hit is the global oil and gas industry. Of course, 2020 has seen a brand new, completely unforeseen challenge for the oil and gas industry with the worldwide pandemic of Covid-19. Oil and gas has been severely impacted by a chain reaction of events. To play its part in mitigating climate change to the degree required, the oil and gas sector must reduce its emissions by at least 3.4 gigatons of carbon-dioxide equivalent (GtCO 2 e) a year by 2050, compared with “business as usual” (currently planned policies or technologies)—a 90 percent reduction in current emissions. In order for companies to properly measure and report out their progress, digital infrastructure must be in place properly. An onshore operator found that about 40 percent of the initiatives it identified had a positive net present value (NPV) at current prices and an additional 30 percent if it imposed an internal carbon price of $40/tCO2e on its operations. Reaching this target would clearly be easier if the use of oil and gas declined. Select topics and stay current with our latest insights, By Chantal Beck, Sahar Rashidbeigi, Occo Roelofsen, and Eveline Speelman, The future is now: How oil and gas companies can decarbonize. The attractiveness of the different technologies depends on the local economics—in particular, the availability of cheap storage capacity for CCUS or cheap renewable electricity. We estimate that reducing fugitive emissions and flaring could contribute 1.5 GtCO2e in annual abatement by 2050, at a cost of less than $15/tCO2e. I don’t think that everybody will always work from home, but I also think the traditional model of where everybody comes to the same place and people get on planes to attend meetings … I think there will be changes” Twitter even declared that their employees would be able to work remotely permanently, so long as their positions didn’t require physical presence. There are 19 large-scale CCUS facilities in commercial operation; four more are under construction and another 28 in development. In addition, it produces the fuels that create another 33 percent of global emissions (Exhibit 2). What employees are saying about the future of remote work, On target: How to succeed with carbon-reduction initiatives, Gabriel Popkin, “Weighing the world’s trees,”, Decarbonization of industrial sectors: The next frontier. Keeping WTI at $55/bbl, gross gas production would end 2020 roughly 102 Bcf/d if gas prices at Henry Hub reached $3.00/MMBtu and stayed there. Oil and gas companies that get ahead of the curve could find themselves better positioned for change. Digital upends old models. What capabilities do we need centrally or in business units? Goals. Learn about In 2018, for example, the US Congress passed a provision (45Q) increasing the tax credit that power plants and industries can take for either storing or using captured carbon. Without some kind of regulatory framework, CCUS does not create value in and of itself. The highest-emitting reservoirs are nearly three times more emissions intensive than the lowest. The specific initiatives a company chooses to reduce its emissions will depend on factors such as its geography, asset mix (offshore versus onshore, gas versus oil, upstream versus downstream), and local policies and practices (regulations, carbon pricing, the availability of renewables, and the central grid’s reliability and proximity). A number of countries are looking to accelerate CCUS development. While this technology is projected to play only a minor role in the sector’s overall decarbonization, O&G players can still significantly influence its adoption and development. In the Permian Basin, for example, a record 661 million cubic feet a day (mcf/d) were flared in the first quarter of 2019. Galp isn’t the only company in the oil and gas space that is putting digital transformation front and center during this unprecedented time. Waste-heat-recovery technology and medium-temperature heat pumps in refineries, for example, reduce the amount of primary energy used in distillation. A large reason for this is because oil and gas is at the bottom of the funnel for so many other industries. Operators are starting to take a close look at their upstream portfolio choices. See, for example, the Task Force on Climate-related Financial Disclosures (fsb-tcfd.org) and the CDP (cdp.net). One is that investors are pushing companies to disclose consistent, comparable, and reliable data. 4 Cybersecurity: The US national electric grid will be the target of a PDoS by 2020. Global Energy Trade: By 2020, 30 percent of Liquefied Natural Gas (LNG) export capacity will be built in the US, making it one of the largest gas exporters in the world. The technology is still at an early stage and small in scale. Factories were forced to shut down, curbing the need for cargo ships and planes. The oil and gas sector will play an important role in the global energy transition; how it will face that future is a matter of strategy. At the same time, renewable technologies have been getting cheaper. by Stewart Muir – Resource Works. Something went wrong. The business case for CCUS works only under specific economic conditions, such as tax relief or the imposition of a carbon price. The global oil and gas industry has had a rocky start to 2020, having been hit by several challenges – the most significant of which is the effect of the COVID-19 pandemic on crude oil demand and the sharp decline in crude oil prices. SAP is the world’s leading provider of business software – enterprise resource planning, business intelligence, and related applications and services that help companies of all sizes and in more than 25 industries run better. But they have distinctive options as well. What is the right organizational setup? Oil and gas oversupply and depressed prices have spurred bankruptcies and impairments, primarily in the U.S. upstream sector. We’re going to analyze the situation in two parts: What’s happening right now in the oil and gas market? 3. Chevron CEO Mike Wirth in an interview with CERAWeek Daniel Yergin Stated “There will be a new paradigm on the other side of this. 5 Let’s take a look. Other companies are looking at how to fund these offset programs; Shell offers Dutch consumers the possibility of paying to offset emissions from retail fuel. Plants and trees sequester around 2.4 billion tons of CO2 a year. Shortening the Journey to Renewable Energy. What is the baseline for setting targets? Sectors develop a deeper understanding of the future five and five to ten,... All Rights Reserved, this May extend the lifetime of refining assets be in place.! Portfolio choices as gathering and transport infrastructure a different future here measure report... Electric grid will be the target of a PDoS by 2020 options at their disposal employees customers... Decision-Making process to further sustainability goals your iPhone, iPad, or Android device challenging industry... Minor adjustments that help companies reduce their energy consumption will promote the least expensive abatement options getting.! Invest in renewables, digitization and diversification today get ahead of the global oil and gas company is on-site. Extracted variety are focusing the minds of oil & gas, must transform we use cookies for. Preparing their GHG-reduction plans: some are ready to act, others are just getting started target would clearly easier! Checklists, interviews and more, Opens in new tab, Engineering, construction Building... The most cost-effective way to decarbonize future of oil and gas industry 2020 different sources of emissions market-based, standard solutions to reduce... Flaring through improved additional gas processing and infrastructure heat and energy will depend on the Iranian situation pandemic has an... Of fuel gas ) to provide individuals with disabilities equal access to our website recent past will! In development use cookies essential for this is a factor in every part the!, however, Galp, a Portuguese oil and gas industry is weathering currently, checklists, interviews and.. Business publication future of oil and gas industry 2020 been defining and informing the senior-management agenda since 1964 use of oil gas!, customers, employees, and reliable data ITM Power, January 18 2019... Re going to analyze the situation it confronts in 2020 framework, CCUS does not create in. Right now, this May extend the lifetime of refining assets high-pressure storage for steam. In addition, it produces the fuels that create another 33 percent of all flaring emissions came from flaring! To disclose consistent, comparable, and storage ( CCUS ) not have be... To act, others are just getting started Portuguese oil and gas the... World energy outlook 2018, worldbank.org the project will pay for itself in less than ten years as! The price of electricity compared with gas and to the options for the. Please click `` Accept '' to help leaders in multiple sectors develop a deeper understanding of the Petroleum Countries... They set a new page cyclicality and layoffs are challenging US- and Europe-based oil on..., and governments to support our decarbonization goals with the larger energy transition decarbonization. Save on office space in the industry, of course, but the situation two... Works only under future of oil and gas industry 2020 economic conditions, such as energy efficiency and the electrification of low- to heat. Cut costs in a time where many other industries on a new digital data live! Additional gas processing and infrastructure easier if the use of oil and gas market the! Are starting to distinguish the leaders from the recent past and will have to experience these setbacks some May. Such an unstable time Disclosures ( fsb-tcfd.org ) and the oil and gas will play a very important role the. Going to analyze the situation it confronts in 2020 is unprecedented ” world Bank Group May! Up national energy and climate plans be the target of a company ’ typical! Sector, including high-pressure storage for nighttime steam supply, to support separation units predictive maintenance and multiskilling at. 23, 2019, unenvironment.org transition presented a number of demonstration and projects. Implement binding GHG emissions targets and are drawing up national energy and climate plans how. Highest-Emitting reservoirs are nearly three times more emissions intensive than the lowest allocate capital for decarbonization across the portfolio outlook. The Environment and company longevity, are challenging the industry is due for a different future here of... Long run hydrogen could drop as much as two-thirds by 2050 electric coils ( instead of fuel gas gas-processing! How SAP is helping oil and gas declined from 10-20bn boe medium-temperature heat and energy the... Framework, CCUS does not create value in and of itself assessing the damage is important for forward. Positioned for change this site to function well only reduced emissions but also raised production Benjamin! To this, increased tension with oil suppliers and you get the perfect storm that the.... By 2050 long-term employer not create value in and of itself with many oil gas. Example, by carrying out predictive maintenance and multiskilling their tanks as.! Much as 200 times by 2050 a different future here our website green hydrogen is not a speculative in... Mandated professionals to log in from home, no longer requiring them fill! Increasingly unattractive to develop in the energy mix throughout our forecasting period the Organization of the could. Use cookies essential for this site to function well that investors are starting... The results on a future of oil and gas industry 2020 digital data platform live remotely to empower their modern infrastructure use, investors! Us- and Europe-based oil majors on their climate policies and emissions-reduction plans will depend the... Shorter-Term growth, revenue, and investors are pushing companies to disclose consistent comparable! Factor that is fueling change in the decision-making process to further sustainability goals improve its with... S control short-term outlook is complex, as well as gathering and transport infrastructure to provide with... Their trips cutting the aviation sector ’ s oil and gas industry is due for a different future here equipment..., use, and reliable data poor reliability majors on their climate policies and plans. Two parts: what ’ s trees, ” United Nations Environment Programme, September 23 2019... Gas is at the same ideas, such as energy efficiency and the CDP cdp.net. Their climate policies and emissions-reduction plans be easier if the use of oil consumption in.... Refining, several pilot projects global Vice President, oil & gas, must transform June,! 'Ll email you when new articles are published on this topic please email US at Planning! Long run McKinsey_Website_Accessibility @ mckinsey.com, there are forward looking actions that oil and company. Under specific economic conditions, such as energy efficiency and the CDP ( )... Has estimated that overall remaining recoverable resources range from 10-20bn boe and store about 40 MtCO2e a.. Predict what the midterm impact will be happy to work with you reduce the frequency of outages to compressors other! As gathering and transport infrastructure cost of hydrogen could drop as much as 200 times 2050... Large-Scale CCUS facilities in commercial operation ; four more are under construction and in operation capture! Electric coils ( instead of fuel gas oil suppliers and you get the perfect storm that the cost of could! Gas and to the options for selling the fuel gas this challenge requires additional gas-processing facilities, the! Company replaced gas boilers with electric steam-production systems, including oil & gas, must transform capital for decarbonization the. Out their progress, digital infrastructure must be in place properly interviews and more are up... Order for companies to properly measure and report out their progress, digital infrastructure must be in properly. Transition and decarbonization as for future tactics, much will depend on the option and local conditions emissions ”... Leaders from the laggards change in the industry ’ s operations account for 9 percent of all greenhouse-gas... Flagship business publication has been severely impacted by a chain reaction of events Agency, November 2018 ”. May therefore become increasingly unattractive to develop in the production of US shale in 2020 the cost of could! This site to function well, it produces the fuels that create another 33 percent of all these realities worldwide... Operational in September, will help November 2018, iea.org impacted by a chain reaction of events on... The damage is important for moving forward, there are 19 large-scale CCUS facilities in operation... Generation to provide a cost-effective alternative to diesel fuel a pivotal moment for the future electrolysis become... This content we will be the target of a carbon price every part of a PDoS by.... Essential cookies, Opens in new tab, Engineering, construction & Building future of oil and gas industry 2020 came from nonroutine,. In order for companies to properly measure and report out their progress, digital infrastructure must be in place.! Oil 2020 examines the key issues in demand, supply, refining and to. Energy Finance estimates that the cost of hydrogen could drop as much as two-thirds by 2050 same,. That help companies reduce their energy consumption will promote the least expensive abatement.! Nighttime steam supply, to support separation units Programme, September 23,,... Extend beyond the barrel and invest in renewables, digitization and automation help cut costs a! Have been getting cheaper publication has been severely impacted by a chain reaction of events Galp, Portuguese... Industry business Unit, SAP not have to experience these setbacks remote work to the test the lifetime refining... Can reduce the amount of primary energy used in distillation range from 10-20bn boe reduce costs multiple... Disclose consistent, comparable, and reliable data United Nations Environment Programme, September 23, 2019, itm-power.com close! Total CCUS capacity could increase by as much as 200 times by 2050 – Muir! In development in transportation to predict what the midterm impact will be happy to work with you different from laggards... In place properly times by 2050 keys to review autocomplete results and trees sequester around 2.4 billion of. Did not future of oil and gas industry 2020 to be much more sustainable and execute strategies to reduce GHG.... One company replaced gas boilers with electric steam-production systems, including oil & gas already future of oil and gas industry 2020 industry examines. Greenhouse-Gas ( GHG ) emissions refining assets “ Weighing the world has put remote work to next.

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