Oil and Gas - a Sunset Industry? the Role of Petroleumin the 21St Century
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ECON--65/97 N09805402 IjAKj NORSK PETROLEUM S- Mforening /npe a'-Jj KOlWlaiAk MIIOHIH Itlllll This report has been sponsored by the following companies: 7=Pr AM DEM1NEX DETNORSKE VERITAS HYDRO (conoco) ★ Smedvig Ferst til framtiden umoe , PHILLIPS, NESTE Neste Petroleum AS #Aker Maritime HELE VEIEN ill t H I 1J Geco-Prakla fee CM 0 STATOIL krediticassen Kvaerner Oil & Gas K CHRISTIANIA BANKOG KREDITKASSE Oil and gas - a sunset industry? The role of petroleumin the 21st century Commissioned by Norwegian Petroleum Society ECON-report no. 65/97 This report is published by: ECON Centre for Economic Analysis P.O. Box 6823 St. Olavs pi., N-0130 Oslo Phone no. +47 22 98 98 50, fax no. +47 22 11 00 80 ISSN: 0803-5113, ISBN: 82-7645-221-3 © ECON Centre for Economic Analysis, 1997 DISCLAIMER Portions of this document may be illegible in electronic image products. Images are produced from the best available original document. Foreword In 1972, the development of the Norwegian petroleum resources led to the establishment of Statoil, Saga, The Norwegian Petroleum Directorate and Norwegian Petroleum Society. Consequently all these key institutions can celebrate their 25* anniversaries in 1997. During this period the four institutions have played different roles. Norwegian Petroleum Society has developed into a forum for contact, information and networking. Our most important role is to arrange seminars and conferences for the petroleum industry. It is therefore appropriate to celebrate our 25* anniversary with a unique and forward-looking conference. NPF has engaged ECON Centre for Economic Analysis to analyse the role of oil and gas in the 21st century, and to present this report as the first speech at our 25* anniversary conference. Kjell Roland has been principal author of this report. Valuable contri butions have been made by Torleif Haugland, Paul Parks, Bjorn P. Saga, Jan Arild Snoen and Knut Vralstad, while May Brith Hakonsen has provided clerical assistance. This report has become a reality through the kind sponsoring of the following companies: ABB Neste Petroleum Aker Maritime Norsk Agip Amerada Hess Norge Norske Conoco Amoco Norway Oil Co Norsk Hydro Deminex Norge Norske Shell DetNorske Veritas Phillips Petroleum Co. Norway Enterprise Oil Norge Saga Petroleum Esso Norge Schlumberger Geco-Prakla Kongsberg Offshore Smedvig Kreditkassen Statoil Kvaemer Oil & Gas UMOE Happy 25* anniversary to NPF and its members! 3 ec#n Table of contents: 1 EXPERIENCES OF THE PAST AND PERCEPTIONS OF THE FUTURE.................................................................................9 2 FALLACIES OF THE PAST 25 YEARS..................................... 13 2.1 Introduction.................................................................................... 13 2.2 Exhaustible resources - the nonproblem........................................ 13 2.3 OECD living on OPEC mercy.......................................................20 2.4 Multinational corporations as vehicles of neo-colonialism...........26 3 MEGATRENDS IN THE ENERGY INDUSTRY.................... 31 3.1 Liberalisation and competition...................................................... 31 3.2 Technology and costs.................................................................... 39 3.2.1 Forces shaping energy developments.............................................39 3.2.2 Technology and structure of industries.........................................40 3.2.3 The scope for improvement - the gas sector..................................41 3.3 The environment.............................................................................47 4 THE FUTURE OF ENERGY........................................................51 4.1 Today’s consensus in number crunching........................................51 4.2 A shifting and complex policy agenda..........................................59 4.3 Global warming - the final stumbling block ..................................63 4.3.1 Understanding the nature of the problem......................................63 4.3.2 De-couple energy use and carbon emissions..................................64 4.3.3 Real world abatement policies.......................................................65 4.3.4 A strategic R&D vision for energy sector......................................67 4.4 Why the oil industry will survive against all odds........................68 REFERENCES:..........................................................................................73 APPENDIX: LIST OF ABBREVIATIONS....................................... 77 List of figures 2.1 Commodity prices in constant dollars........................................... 14 2.2 Real price of oil............................................................................. 15 2.3 Jevon’s study of coal resources in England................................... 15 2.4 Global Reserves - to - Production (R/P)........................................ 16 2.5 Identified reserves, undiscovered resources and accumulated production of crude oil..................................... 17 2.6 Capital cost per unit of production................................................ 18 2.7 Operating cost per unit of production............................................ 18 2.8 Regional distribution of proven reserves of oil............................. 19 2.9 Regional distribution of oil reserves..............................................20 2.10 Oil production by region................................................................21 2.11 Official projections of oil production in Norway..........................22 2.12 Oil production in selected Non-OPEC countries...........................22 2.13 The split of the barrel .....................................................................23 2.14 US oil import requirements...........................................................25 2.15 Production and consumption of oil in China.................................26 2.16 Turnover and GDP of selected MNC and nation states.................27 2.17 Financial flows to developing countries........................................28 3.1 Share of OPEC crude controlled by national companies...............33 3.2 Coal exports to OECD.................................................................... 33 3.3 Price on imported coal to OECD.................................................... 34 3.4 Production, consumption and imports of coal to Western Europe............................................................................................35 3.5 Natural Gas Prices in the US.......................................................... 36 3.6 Competition in electricity............................................................... 37 3.7 The true price of light..................................................................... 39 3.8 Optimal scale in power generation................................................. 40 3.9 Costs for natural gas imports to EU).............................................42 3.10 Cost reduction in the gas chain......................................................43 3.11 Pipeline installation costs in North Sea.........................................44 4.1 Evolution of Energy Intensity......................................................... 52 4.2 Global energy consumption by fuel...............................................53 4.3 Global energy consumption by region...........................................53 4.4 Scenarios for global energy consumption.....................................55 4.5 Changes in energy intensity in OECD and ROW..........................56 4.6 Share of energy used in Asia......................................................... 57 4.7 Consumption of oil and gas........................................................... 57 4.8 Global carbon emission.................................................................58 4.9 Carbon emission by region............................................................59 4.10 The post-war energy policy agenda in OECD...............................60 4.11 The new agenda.............................................................................61 4.12 Conflicting and diverse policy priorities.......................................62 4.13 Tomorrow’s policy agenda............................................................63 4.14 De-coupling emissions..................................................................64 4.15 The R&D policy agenda..................................................................65 4.16 Average tax on fossil fuels in OECD Europe................................69 4.17 Oil consumption by region............................................................70 7 ecsn List of tables/boxes Table 2.1 Reserves and production of oil by region........................... 20 Box 3.1 New partners in oil industry.......................................................32 Box 4.1 Two classes of projections of future energy..............................54 ecsh 8 1 Experiences of the past and perceptions of the future Introduction Policies and long term commercial commitments build on passed experience and on our present perception of the future. This report explores our understanding of the petroleum industry after more than 25 years of petroleum activity in the North Sea and review the current perceptions commonly shared by industry and analysts regarding future developments. During the last 25 years, North Sea has become a major new petroleum province and Norway the worlds 8* (soon to be 7*h) biggest oil producer. The