Comments: Pressing Questions
Authors: Donnelly John 
Published: February 2015

As with any industry, certain themes in the oil and gas industry tend to dominate discussion, until those problems are solved or eventually dismissed as minor. Some—whether the world is running out of oil comes to mind—flare up from time to time and even spill over into the mainstream media. Confronting the industry today, and frequently leading the talk at industry conferences and functions, are such issues as the availability of human capital as the oil and gas industry grays, the industry’s poor public image, its evolving social responsibility role, how to meet growing world hydrocarbons demand, and the need for new investment.
The surprising rise in global demand over the past year and a half and new reports of dwindling oil supplies have spurred discussion on how the industry should confront what appears to be a major and perhaps even urgent challenge. Questions raised include: Should the industry adopt a strategy of “managed decline,” how can technology help squeeze additional oil out of existing fields, what are the limits to deepwater production, and what are the new rules of the game in countries offering formerly off-limits acreage for exploration?
Despite some recent setbacks, new opportunities for private investment seem to be increasing. Appearing at the recent Cambridge Energy Research Assocs. (CERA) conference in Houston, T.N.R. Rao, the former Permanent Secretary for Petroleum and Natural Gas with the government of India, and the founder and Chairperson of the Indian U. of Petroleum and Energy Studies, offered an upbeat assessment of his country’s prospects for energy development. India’s energy demand is forecast to grow 4% per year over the next decade. Significant reforms in Rao’s country are opening up numerous opportunities for investors, with barriers to entry being lowered or eliminated, he said. Of particular interest is the need for deepwater and frontier investment, and especially for gas, as power producers are increasingly looking to this fuel for power generation.
Two executives commented on the opportunities and challenges of operating in Russia, one of the countries that will be instrumental in satisfying future demand. Vagit Alekperov, President of Lukoil, said that the strategic alliances between western and Russian companies—BP and TNK and, most recently, ConocoPhillips with Lukoil—underscore Russia’s attractiveness to investors. But the Russian oil and gas industry is in a state of flux. In the future, he said, the industry will see three kinds of companies: private transnational companies, private Russian companies, and state-owned companies. One or two companies in each of those groups will overshadow the rest. As Russian oil output increases, the global supply/demand balance could change, depending on whether most of that oil flows to the Atlantic region or the Pacific region, he said. Gas production and exports also will swell. Larry McVay, Chief Operating Officer of BP-TNK, noted that operating in Russia does pose challenges. Russia is a world-class hydrocarbons area with an improving economic environment for operators, but state control of the industry is increasing, transportation problems exist, and taxes can be high. Russia represents a “high-quality opportunity” that is “challenging but manageable,” he said.
Despite all the talk of growing global demand and dwindling supply, CERA analysts offer a relaxed view of the world supply/demand balance. They see an overbuild of supply already well under way, one that could weigh heavily on oil prices in 2006–07. CERA predicts that global oil production will rise almost 20% to 101.5 million BOPD by 2010, with the increase coming just about equally from OPEC and non-OPEC producers. Much of the new oil will come from deepwater provinces in the Gulf of Mexico and offshore Brazil, Angola, and Nigeria.