“I thought we would be speaking for 15 minutes, now it has turned into half an hour already!” Carole Nakhle is sought after when it comes to her view on the global swings and roundabouts of the oil business. She regularly appears on camera with various news outlets, and also finds the time to write commentary pieces, all the while she also runs her consultancy business Crystol Energy.
“Looking at the longer term, let’s say around 50 years, I have no concern at all about the ability of the oil producers to satisfy demand. You technical people tend to focus too much on the subsurface; if the right price environment is there, investment will come in developing new resources.”
It is refreshing to talk to an economist sometimes.
“My only concern,” Carole continues, “is that there may not be enough investment in new projects at the moment, on the back of the narrative that new investments would not be required or should not be made on the back of climate concerns. This has, however, recently been u-turned by the IEA, as it is now saying that investments are needed to maintain supply.”
Another interesting point Carole makes is about the notion that it is not only the Middle East that can act as a swing producer. In some ways, the US shale patch has also demonstrated that it can. “Maybe not as quickly as the Middle East could do, but certainly the US industry can respond fairly quickly to shifts in demand and price by ceasing production from wells and reducing the number of active rigs.” In other words, as Carole has said in other interviews, the landscape of oil producers has diversified and has therefore resulted in a more robust and resilient landscape of suppliers.
A change of centre of gravity
The country that always comes up when talking about remaining oil reserves is Venezuela, with an estimated 300 billion barrels yet to be produced. “Venezuela is an example of a country where the value of the resource that is sitting in the subsurface is not an indication of the prosperity the country enjoys,” says Carole. “This is a self-inflicted situation the country finds itself in through adverse policies and nationalisation. In a way, with the world not even experiencing a shortage of oil supply at the moment, imagine what would happen if Venezuela will start to massively invest tomorrow?”
The typical subsurface view of rapidly depleting reservoirs in places like the North Sea is not a reason for Carole to start getting concerned about a shift of global oil production to places that are politically less stable.
The main problem with your statement is, why would you be so sure that a basin like the North Sea is going to lose its importance entirely?
“The main problem with your statement is, why would you be so sure that a basin like the North Sea is going to lose its importance entirely? Carole asks. “Even the UK is still a significant player, and look at Norway, there are two other areas – Norwegian and Barents Seas – that are still in the game too. And who knows what kind of technology will arrive tomorrow that will enable the extraction of more resources from the North Sea? In other words, I think it is too easy to conclude that petroleum production will soon cease in areas such as the North Sea.”
The role of unconventionals
Carole does not see the model of the US shale revolution happening in other places. “The USA is unique, maybe with parts of Canada included, where the main factors enabling unconventional production come together,” she says. “Availability of rigs, infrastructure, sparsely populated land, experienced people and, very importantly, private landownership. That is a big enabler and forms a big incentive to develop shale gas and shale oil. Finding a similar situation elsewhere in the world is challenging.”
On that basis, she is sceptical about how easy it will be to replicate the same model elsewhere, even when knowing that the USA is not sitting on the biggest unconventional resources to start with. “Yes, Saudi Arabia is developing what we can call unconventional gas, but for now, this seems to be mainly for domestic consumption and in terms of costs will also be much more expensive than the more conventional oil and gas that the country has been producing for so long. In that sense, the US model does not seem to be matched.”
We will not run out, but there will be changes nonetheless
Overall, there is confidence that the world will not run out of oil. The advance of technology has compensated for that, with an almost incomprehensible array of sophisticated tools and methodologies that allow operators to squeeze more barrels out of their reservoirs than ever before. I believe that this advance in technology is now starting to change the face of the oil industry significantly.
The industry started with just lucky shots, sometimes guided by the odd surface seeps. That element of risk – you drill a dry hole or you drill a gusher – has been the backbone of the industry until now. For decades, the potential reward for drilling a successful well has strongly outweighed the completion of quite a few dry holes. This element of risk, and the careers that have been made on the back of that, has had a big effect on how the industry planned for its future.
That concept of high-risk and high-reward has already changed onshore USA, where unconventional oil and gas is not so much about finding the closure that contains hydrocarbons. It is now about finding the sweet spots that tend to be more regional and widespread. Supported by a massive drilling industry that is required to produce these much tighter rocks, developing these resources successfully has meant that the industry has become less exposed to geological risk and more exposed to engineering risks.
Combining this with what people have told me, and even though Carole Nakhle does not immediately see a repeat of the US shale patch, still there seem to be signs that unconventionals are becoming more important in places outside the USA: ExxonMobil signing contracts in Azerbaijan for tight oil, Canada continuing to be a major player in unconventional oil sands, and China ramping up as well, there is a picture emerging that hints towards a shift in the industry towards reducing geological risk whilst becoming much more of an engineering subsurface business at the same time. And on top of that, as Brent Brough explained, and Nelson Suarez backed up too, technology will also be of utmost importance to unlock more volumes from already existing fields, again causing a shift towards the engineering part of the game.
In conclusion, I believe that where the first 50 % of the world’s oil was mainly produced from fields that were found with a real explorer’s mindset, producing the second half will be characterized by much more of an engineering approach from basins we already know. Is conventional exploration, therefore, on its way out? Well, in some ways it seems to be the case already, when looking at the year-on-year decline in seismic surveys being acquired, and with the recent news that TGS is selling off two of its acquisition vessels. Interesting times, especially for reservoir engineers.
This article is the third in a series of three.
Find the first one “Producing the next 50 % of the world’s oil reserves” here.
and the second one “I’m exceptionally bullish about the future” here.
