Mark Montanari, VP Chemicals and Oil & Gas, discusses some major challenges the oil & gas industry will face in the next three decades and considers what the industry can do today to prepare for tomorrow.
The North American oil & gas industry has a positive 30-year outlook, but only if certain challenges are addressed. In a recent article in International Policy Digest, I was quoted throughout commenting on some of these challenges, which include tariffs and trade wars, China’s energy policy, a rapidly eroding operational skill set and a $35 - $70/bbl price environment for the foreseeable future.
First of all, we’re seeing increased energy demand throughout the developed world, and this will continue for at least the next 30 years. One of several driving factors in this demand is China’s goal of achieving GDP parity with the US and OECD by 2050. Achieving that will take a lot of energy and, although China has become a leader in alternatives and renewables, the Chinese appetite for oil and gas will need to continue unabated if they are to meet that goal, especially given their shift away from coal and towards LNG as a replacement.
Alternative energy and renewables are gaining strength, but not necessarily at the cost of oil and gas. While demand for renewables will continue to grow, it will not grow fast enough to meet the increased energy demand coming from China and other parts of the developing world. Even with deployment of alternatives in China and other nations, oil and gas will remain essential to those nations’ growth targets.
While the push for alternatives will accelerate, geothermal, wind and sun are not, as one might imagine, free. With the growth of these technologies, increasing demand and the technology being deployed to containing reservoir depletion rates, we are still seeing favorable economics in the production of BTUs (kilojoules) through oil and gas, even when considering the exploration, mining, processing and transportation involved.
How this translates to operators in Upstream, is being prepared to break-even on free-cash-flow basis at $35/bbl by looking at efficiencies in the integrated supply chain. Midstream will continue to balance intermodal and pipeline utilization vs. increased capacity. Similarly, refiners will continue to operate at higher-than-nameplate utilization – when feasible and seek to leverage improved capability in data analytics to continuously manage feedstock acquisition and balance the crack-spreads economics.
If you would like to talk about any of the topics raised in this article, please contact Mark Montanari at: email@example.com for a no-obligation discussion.
Calculate the value potential for your business. Complete our TVO Self Assessment Tool ™ and receive an automated Value Opportunity Report. This provides an indicative quantification of the value improvement potential (EBITDA & cash) across your buy-make-move-fulfill supply chain.
Maine Pointe is a global supply chain and operations consulting firm trusted by many chief executives and private equity firms to drive compelling economic returns for their companies. We achieve this by delivering accelerated, sustainable improvements in EBITDA, cash and growth across their procurement, logistics and operations. Our hands-on implementation experts work with executives and their teams to rapidly break through functional silos and transform the buy-make-move-fulfill supply chain to deliver the greatest value to customers and investors at the lowest cost to business. We call this Total Value Optimization (TVO)™.
Maine Pointe’s engagements are results-driven and deliver between 4:1-8:1 ROI. We are so confident in our work and our processes that we provide a unique 100% guarantee of engagement fees based on annualized savings. www.mainepointe.com