One person who has given a lot of thought to what the oil and gas industry might look like when it can no longer count on a growing consumption from the transport sector is Iskander Diyashev, an instructor for PetroSkills and a former SPE Director who is serving as an SPE Distinguished Lecturer in 2017–18 for the second time. His current lecture topic is The Future of Oil.
Diyashev has taught petroleum, reservoir, and production engineering and advanced classes in reserves evaluation, well test design and analysis, and gas reservoir management. He previously held engineering and leadership roles at S.A. Holditch and Associates, Schlumberger, Sibneft, Geo-Alliance, and NRK-Technology. He holds a PhD degree in petroleum engineering from Texas A&M University and BS and MS degrees in molecular and chemical physics from Moscow Institute of Physics and Technology.
To Diyashev, a leveling off of transport demand should be closely linked chronologically with peak oil consumption. As demand starts to fall shortly thereafter, prices will begin a long-term downward trend. He believes it will happen relatively soon.
‘Sluggish Growth in Demand’
“We might have five or maybe 10 years more of sluggish growth in demand,” he said. “And when the consumption decreases, I think we will start seeing depressed oil prices. Not depressed like now. What we see now we will come to think of as the good old days when prices were high. Oil unfortunately is a very inelastic product in terms of demand. If you have an extra 2 million barrels on the market, the price drops by a factor of three.”
With unconventional production methods having essentially eliminated the prospect of a resource shortage, there would be little reason to expect prices to resume a major uptrend.
As the price becomes very low, transportation will become a substantially higher portion of the final delivery cost. As a result, the market could begin to fragment and become less global with customer supply lines becoming shorter, Diyashev said.
Impact of Electric Vehicles
Electric vehicles (EVs) will soon begin to penetrate the market and “start destroying demand” for oil, he said. Their presence will grow and eventually become dominant. Diyashev noted China’s commitment to EV development. “If you look at the 20 best-selling electrified vehicles in China, almost all of them are Chinese-made and -designed, except for one Tesla model,” he said.
It is plausible that the increasing urbanization of the developing world coupled with the long distances between cities, particularly in China, could spur increased air travel and the consumption of jet fuel. However, that potential could be limited.
“China is building a high-speed [magnetic-levitation] railroad network very, very quickly and efficiently across the central part of the country,” Diyashev said. “So that could likely become a more important mode of transportation between cities there than aviation.”
With the overall change in the transportation market, petrochemical demand will assume added significance for the oil industry. “It will become very important because it will be the expensive, higher-value product,” he said.
Strength in Natural Gas
The other strength for the industry will be the natural gas market, although it will see increasing competition in the power sector from renewables.
“I think there is a reasonably long-term future for natural gas; I can imagine that it’s 30, 40, or 50 years,” Diyashev said. “It’s a reasonably long future because at first you’re going to have to displace all of the coal, and coal will be displaced by solar and natural gas. The chances are there will also be displacement of nuclear power generation.”
However, continued improvement in battery technology for energy storage will drive the strong expansion of solar and wind energy in the power market.
“For gas to stay competitive as a fuel component, its cost for power generation will need to stay in a range of [USD] 0.03 per kilowatt hour,” Diyashev said. “Its price will need to remain low, maybe [USD] 3.00 or 4.00 per BTU.”
Investments under way in China and Saudi Arabia will give impetus to solar energy as a growing source of global electric power.
“Saudi Arabia is planning to build 10 gigawatts of solar power and has already secured the financing. Ten gigawatts is quite significant,” Diyashev said. “There is a lot of desert in the Middle East, a lot of places to put large-scale solar generating facilities, and the land is not so expensive.”
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