CERAWeek 2019 seeks to unravel the "new world of rivalries"

By CRAIG FLEMING, TECHNICAL EDITOR, WORLD OIL on 4/2/2019

HOUSTON -- CERAWeek by IHS Markit kicked-off in downtown Houston, on Monday, March 11. The week-long event focuses on providing meaningful dialogue, aimed at solving the various challenges facing the energy industry―from geopolitics and trade to costs, price volatility, environmental policy, disruptive technologies, inter-fuel competition, and the battle to attract younger workers before they commit to other industries.

The on-going energy transition has created considerable uncertainty for long-term strategy and investment. On Day One, upper-echelon company executives and governmental officials shared ideas, and explored solutions and outlined methods to form new relationships/partnerships to contribute to the industry’s ability to insure abundant, cost-effective energy supplies.

Geopolitical dialogue. The conference opened with a discussion about geopolitical hot spots that are threatening regional stability and could hamper energy development and delivery. The panel of experts offered input on the following questions:

  1. How is Russian engagement in OPEC affecting world oil markets?
  2. Given tensions across Turkey, Iran, Saudi Arabia, Syria and Yemen—and links to the U.S. and Russia—is there any scenario for stability in the Middle East?
  3. How do tensions among major powers exacerbate the risk of crises?

Getting Russia to join OPEC to form OPEC+, was a brilliant diplomatic maneuver, considering the deep philosophical differences that put Saudi Arabia and Russia on opposite sides of the Syrian civil war. The agreement, between Russian President Vladimir Putin and Saudi Arabian Deputy Crown Prince Mohammed bin Salman, established a pseudo-permanent alliance between two of the world’s largest oil producers, after previous attempts had failed. The consensus was that concessions by Russia were instrumental in cementing the accord. “Putin’s big move to make Russia important in world oil markets has worked,” said Suzanne Maloney, deputy director of foreign policy, the Brookings Institution. The actions have improved relations between the two countries and are building a solid foundation to stabilize oil markets and energy process. “Although, Saudi Arabia has taken a big step back in its relations with the U.S., with the disappearance of Washington Post columnist Jamal Khashoggi, a well-known critic of the Saudi government,” Maloney continued.

Additional Middle East discussion swirled around effects that U.S. sanctions are having on Iran. “The intent of U.S. economic pressure on Iran is to cause a regime change in the country,” according to Maloney. “But Tehran will suffer the consequences until 2021, without an exit strategy, with hopes President Trump will be voted out of office.” Angela Stent, director, Center for Eurasian, Russian and East European Studies added, “Russia is supporting Iran and will help them weather the storm.” Sir John Scarlett, senior advisor, Morgan Stanley, added, “Iran is a wildcard, and the country does not act normally.” “Also, Iran has a big investment in Syria and will continue to support the current regime,” Scarlett concluded.    

Fuels of the Future: The new rivalry. Although the session suggests a competition between renewables and traditional oil and gas development, industry leaders say a more symbiotic approach between companies will help ease the transition to cleaner fuels.

Maarten Wetselaar, integrated gas and new energies director, Royal Dutch Shell, said “the world needs to start a serious transition to electric cars, because ocean-going ships and trains are too difficult to electricify with present technology, to make an impact at this time. We have a choice to stick to oil and gas, or step up with low-carbon energy and technologies designed to use cleaner fuels, as outlined in the Paris agenda.”

Jack Fusco, president and CEO, Cheniere Energy, suggested a more practical approach to help bridge the gap is to use the ample natural gas reserves in the U.S. “Gas will play a big role in the future―the question is how do we make the resource sustainable?” Fusco offered the following outline:

  • Use fact-based science, R&D and technical innovation.
  • Shorten the supply chain for the world’s largest LNG users.
  • Strive for operational excellence and efficiency while limiting emissions.
  • Transparency with compliance with various regulations.  

Wetselaar supported this position but added, “we need to tailor LNG operations for smaller customers and markets.” He also agreed that increased supply chain efficiency is a key deliverable: “LNG is difficult and expensive to store, due to evaporation and high bunkering costs. We need to reduce the time it takes to get product from the wellhead to the customer.”  

Arnaud Breuillac, president, E&P, Total, sensed the developing fracture and injected that “energy should not be competing for markets, instead, entities should work together to solve transition and usage issues. But for electricity to be viable, we must develop battery technology and storage systems to preserve energy in times of low usage, then expend it during periods of high demand. We also need to start developing hydrogen technologies as an alternative to batteries.”

Whichever energy comes to the forefront, both Fusco and Breuillac agree that the product must be: 1) affordable/economically viable; 2) readily transportable; 3) reliable; and 4) abundant. Maarten Wetselaar concluded the session by saying, “to make alternatives viable, they must be the self-evident choice.” Wetselaar used the blowout at Spindletop to ensure that the audience understood his definition of “self-evident.”

Digital transformation: Creating value. The oil and gas industry embraced digitalization during the downturn to manage costs and raise efficiencies. As the industry seeks to extract additional value, it appears the best opportunities lie at the interfaces, that is leveraging digital capabilities to integrate across the value chain and lifecycle. There is also an opportunity to use existing digital templates across functional and organizational boundaries. The intent is to remove the silo effect that strands individual applications in a specific business unit or function, to reduce development costs and speed implementation. The transformation will require the industry to change the way it performs work, which will be painful but necessary.

The session started with an interesting observation by David Hicks, V.P, upstream energy, IHS Markit, who said, “although the term “big data” has been used to describe the industry’s digitization efforts, the proposition is about creating value, then capturing and implementing best practices going forward.” This sentiment was reinforced by Maana CEO Babur Ozden, who said, “the key to implementing digital-based systems is to get subject-matter experts to fine-tune digital use cases” and not just capture a significant amount of data.

Saudi Aramco CTO Ahmad Al-Khowaiter added, “Aramco has done a good job at the physical interface―which is capturing/storing the six billion points of data our surface and downhole operations generate daily.” However, to take the next step, Aramco “will concentrate on moving data up the pyramid into the strategic planning stage―or data-based decision making,” or using data for proactive, rather than reactive purposes.

Shell V.P. and CTO Yuri Sebregts said, “to date, we are making more money with digital initiatives than without them. In seismic interpretations, we have implemented machine learning, which has led to improved interpretation and better decision-making, which is something we have been doing for some time now.” But Sebregts revealed that “the industry is at an inflection point with regards to digital transformation, and after 24 to 36 months of R&D, we are ready to scale digital applications, and significant new value is coming soon.”

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