KNGMG Noord Presentation: “The State of the Oil Industry” by Dr. Jilles van den Beukel

DateTuesday, 5 March 2019
Time15:30 - 16:30 hr
Costs
OrganisationKNGMG Noord
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Location
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Program
  • Time: Tuesday 5 March 2019, 17:00-18:00
    You are welcome from 16:30 onwards. Drinks and some snacks will be available;
  • Place: NAM office, Room 2J.04 (the “Yellow Room”)
    If you come from outside the NAM office, please register in advance by reply to this mail;
  • Title: “The State of the Oil Industry”
    Presented by: Dr. Jilles van den Beukel, Independent energy analyst (formerly Shell).

Abstract:
The last few years have seen some major developments for the oil and gas industry. The US oil industry cracking the code to unlock vast amounts of shale (or tight) oil by fracking was the main cause for the big oil price drop in 2014. From well over 100 dollars per barrel, the price dropped to as low as 30 dollars per barrel in early 2016. Since then, it has embarked on a trajectory of gradually rising prices, averaging close to 70 dollars per barrel (Brent) in 2018.
However big the influence of US shale oil may currently be on the oil industry, the rise of US shale does not seem much more important than other major technological breakthroughs from the last decades, such as 3D seismic, horizontal drilling and the opening up of deepwater.
The Paris climate agreement, on the other hand, has fundamentally changed the world of oil. Oil is no longer a relatively scarce commodity that will be needed for an, for all practical purposes, infinite amount of time. Whilst climate change has been well understood for decades, the Paris Agreement marks a major step in the willingness of society to act. Even at a time when all measures related to limiting global warming are only having a minimal influence on oil demand (electric vehicles are now reducing oil demand by about 0,05%) they have started to influence investment decisions and valuations of oil companies.
In one of Shell’s scenarios in the early 1970s, when discussing the potential effects of nationalizations and the increasing power of OPEC, the oil industry was compared to a boat floating down a river. One could see the bend in the river ahead and hear the waterfall beyond it. The same dynamic is at play today: big changes are lying ahead but it is highly uncertain how things will work out.

I will discuss some of the main questions and uncertainties for the future of the oil industry, for three different timeframes:

  1. The short term, the next few years, with a focus on shale oil. US shale has grown from 0 to 8 mb/d (million barrels per day) in less than 10 years. How could it grow so fast? How far can it grow? Can it grow to 10 mb/d? Or 15 mb/d? Surely there must be limits to its growth but what are these limits and when may they come into effect?
  2. The medium term, the next decade, with a focus on conventional oil. Will the recent relatively low investments in conventional oil lead to a new cycle of high oil prices? Or have things fundamentally changed to a lower for longer world? Large volumes of new oil can come from deepwater or from US shale. What choices are the major oil companies making? ExxonMobil and Chevron have large positions in US shale. Total has announced it will not invest here. All the majors are withdrawing from Canadian oil sands (except for ExxonMobil). Shell, BP and ExxonMobil are reducing their North Sea exposure. Total is expanding it.
  3. The long term, up until 2050, with a focus on peak oil demand and the energy transition. Will oil and gas companies transform themselves to energy companies? Or will some continue to focus on oil and gas only (a sunset industry – but perhaps one with a higher return on capital)? Are stranded assets really as big a risk for oil companies as NGO’s tell us they are?

About Our Speaker:
Jilles van den Beukel studied geophysics and obtained his PhD at Utrecht University (“Thermal and mechanical modelling of convergent plate margins”). He joined Shell in 1989 and had various postings in exploration, research and development in the Netherlands, Gabon and the US. From 1999 to 2005 he was part of the team that found and developed Toucan (onshore Gabon). From 2005 to 2012 he was a senior production geologist in NAM (mainly working in the offshore JDA area). From 2012 to 2015 he was exploration team lead for Denmark.
He left Shell in 2015 and spent the next six months hiking. From 2016 onwards he has been writing about energy. He has regular columns in Energeia (the energy supplement of het Financieel Dagblad) and IEX (the largest Dutch website for investors). His study with Lucia van Geuns for Dutch think tank HCSS (the Hague Centre for Strategic Studies) on Groningen appeared earlier this month: Groningen gas: the loss of a social license to operate.