Colorado School of Mines Graduate School Insights

Oil and gas industry’s long-term challenges provide opportunities

The COVID-19 pandemic, having curbed both road and air travel, has caused a dramatic decline in oil demand and prices. While this has been an unprecedented challenge for the oil and gas industry, it still fits into the boom-and-bust cycle companies have grown somewhat accustomed to.

Learn more about the petroleum industry’s boom-and-bust cycles »

Analysts say the bigger long-term challenge may be keeping up with ever-growing demand.

Some forecasts project peak consumption by 2030; others predict demand will plateau after 2050. OPEC, in its 2019 World Oil Outlook, expects global oil demand to continue growing, reaching 104.8 million barrels per day by 2024, up 6.1 mb/d from 2018.

“The world needs energy,” says Professor Jennifer Miskimins, head of the Petroleum Engineering Department at Mines. “The U.S. Energy Information Administration projects the electricity generation from natural gas to stay relatively flat at around 38% until 2050, resulting in the need for natural gas production to continue at current levels. The demand for oil has continued to increase since 1980 due to population growth and improved standards of living worldwide.”

According to Pierce Riemer, director general of the World Petroleum Council, meeting demand will require plenty of investment and venturing into more challenging and costlier areas, “such as the ultra-deep waters, ultra-deep reservoirs, unconventional resources, and inhospitable environments like the Arctic, remote deserts, jungles, mountain ranges and conflicted areas.”

This is where continued education and innovation benefits the next generation of petroleum engineers.

Colorado School of Mines, for example, is home to the Unconventional Natural Gas and Oil Institute, where students conduct research into methods of extracting fuel other than traditional vertical wells. These include harvesting from oil sands, directional drilling and hydraulic fracturing, among others.

“Mines was looking at unconventional reservoirs before anyone called them unconventional,” Miskimins said.

Historically, these methods have only been used when demand and prices were high enough to justify their cost. However, they have become increasingly common in recent years regardless of market conditions.

When prices are high, oil reserves that might have been difficult to exploit economically become commercially viable. According to Investopedia, “increased oil costs helped encourage the development of the techniques and techniques now known as hydraulic fracturing, which involves using steam, gas, and chemical injections to break up rock formations and extract the hydrocarbons contained within them.”

Conversely, during times of low demand, companies are driven to develop new technologies to extract oil more efficiently.

In practice, this means increasing the speed and reliability of equipment, reducing the reliance on personnel through increased automation, developing new techniques that reduce the amount of equipment or personnel altogether, or some combination of the above. All of these developments can cause the methods used for oil extraction to differ substantially from the traditional vertical wells used in conventional oil extraction. Directional drilling techniques, for example, have allowed companies to access multiple underground reserves using a single vertical well—something which would have required multiple vertical drill sites in the past.

“In the longer term, we need to invent, create and adapt technologies which radically improve what we do, particularly in well completions and stimulations, reservoir and production engineering, and in facilities engineering,” said Tom Blasingame, incoming 2021 president of the Society of Petroleum Engineers, in an interview with the Journal of Petroleum Technology published in September 2020.

However, Deloitte, in its 2020 Oil and Gas Industry Outlook, says being unable to exploit these “stranded assets” is not the biggest risk to oil and gas companies. “The real challenge is that the oil and gas companies of today, many of which aspire to be the broad-based energy companies of tomorrow, will need to figure out how to produce more oil and gas (and increasingly power) year after year while also being carbon-conscious and addressing stakeholders’ sustainability concerns.”

Deloitte’s report notes at least four concrete steps companies can take to address this challenge:

  • Identify easier ways to reduce greenhouse gas emissions, such as eliminating methane leaks from existing infrastructure
  • Deploy renewables to reduce emissions from field operations
  • Evaluate opportunities for CO2-enhanced oil recovery, in which carbon dioxide and water are used to flush residual oil from subsurface rock formations between wells
  • Greater investment in infrastructure for freshwater use and wastewater disposal

These and other developments will require highly trained and innovative petroleum engineers.

“All of these needs lend themselves to research initiatives and people that will have new ideas and provide new innovations to solve these problems,” says Miskimins. “Advanced degrees in petroleum engineering provide the tools and knowledge to do so.”

Petroleum engineers have a role to play in the energy transition »

Another bright spot is liquefied natural gas. While LNG faces some of the same challenges as the petroleum market (some of them directly caused by low oil prices), McKinsey & Company notes several factors that point to increasing demand, especially in Asia.

Of late, LNG pricing has offered significant discounts compared to oil—as much as 50 to 70 percent in 2020. The price is low enough that policymakers are making the switch not just from oil to gas but also from coal to gas, with the added benefit of lowering nitrogen oxide emissions.

Another asset to the market is improved global access to LNG. Per McKinsey, only 23 countries had access to LNG in 2010: “Costly import terminals that took years to build and inflexible supply contracts complicated the widespread adoption of gas—despite the attractive near-term economics.” Today, LNG-importing countries number 43, and the development of floating storage and regasification unit (FSRU) technology means supply capacity can respond quickly to changes in local demand and supply.

Asia remains dependent mostly on coal, which meets 47 percent of the continent’s energy consumption. Doubling LNG’s share to 20 percent would open up a huge market of producers—more than 400 million tonnes yearly.

Petroleum engineers will have a large part to play in this shift, which will take time.

Petroleum engineer remains a lucrative career »

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