Global Petroleum petroleum exploration and production trends Abstract: The BP Energy Outlook for 2035 suggests that over the next 20 years, there are three main themes that will govern the energy industry; the demand for energy, the shale revolution and global carbon emissions. Another significant factor that will determine the interaction between these three factors and ultimately influence the direction of where the energy industry is heading, is the global oil price. With falling prices, unconventional exploration is not economically viable and this puts a cap on the extent of unconventional exploration. Hence for Colombia to keep up with changing global trends, innovation is key. The big question now is how to effectively do business in a changing energy environment amidst low oil prices, the ongoing climate change debate and an ever constraining carbon world? Introduction Global petroleum exploration and production trends are continually evolving and face of the energy industry is changing. This evolution is strongly linked to global oil prices and an overall global slowdown in emerging markets. In addition to that, as the global population continues to rise, there is still a continued need for energy sources on the scale at which fossil fuels can provide. This report aims to study overall global trends in the consumption, exploration and production of hydrocarbons and compare them to current practices in Colombia. The first section covers a brief history of the Petroleum industry and how trends are suggesting a convergence towards cleaner fuels. This second section will also look at the changing dynamics in the consumption of petroleum, gas, and renewable energy between Colombia, the top 5 favoured emerging market economies and selected countries within Latin America. As China is a significant energy consumer, it will also be used as a point of comparison. In addition to that, it will also look at the main themes that will govern the energy industry in the coming years. The third section of this report will investigate the ways by which Colombia can strategically position itself to be on par with global exploration and production trends; highlighting the importance of innovation and the potential for Liquefied Natural Gas (LNG) within Colombia. The conclusion is a summary of all the findings and puts together all the ideas during the study of this report and gives final recommendations on the way to advance. Sylvester Ayodeji Bamkole MSc Petroleum Geoscience with Exploration University of Manchester 22/02/2016 1
Hydrocarbon exploration and production - The transition Hydrocarbon exploration started off predominantly with onshore exploration, initiated in the first commercial well in 1859 near Titusville, Pennsylvania. Since then, oil and gas exploration has evolved from onshore mound spotting to the use of seismic images (as revolutionised in the early 1990 s) to improve hydrocarbon exploration and to get a thorough understanding of geological strata. With better imaging techniques, easier transportation networks and more sophisticated technology, there has been more innovative exploration as seen in offshore drilling, tar sand exploration, enhanced recovery from mature wells, Deepwater exploration, horizontal drilling and hydraulic fracturing (as seen in the 2005 boom of shale gas in the US). Figure 1. Timeline showing major events in oil/gas exploration and production Source: Author s work With changing global factors such as oil prices, global CO 2 emissions and Supply vs. Demand factors, the dynamics of the energy industry is heading in a new direction. Experts suggest that there will be a significant shift from dominantly crude oil sources towards gas and renewable sources and this is driven by two main factors (BP Energy Outlook 2035): (1) Strong growth in gas US shale gas and LNG, which is now more tradeable (2) Oil and Gas will continue to grow at least over the next 20 years, largely stemming from strong growth in developing economies 2
Total Gas consumption (BCF) Changing dynamics In terms of consumption, exploration and production trends, Colombia will be compared to the other five favoured emerging markets (Indonesia, Vietnam, Egypt, Turkey and South Africa) and selected countries within Latin America (Mexico, Venezuela, Brazil and Mexico). With China being the world leader in terms of energy consumption, it will also be used as a point of comparison. Graph 1. Total gas consumption in Colombia, China, selected Latin American countries and the top five favoured emerging market economies 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Year Mexico Brazil Colombia Turkey Indonesia Vietnam Egypt Venezuela South Africa China Source: United States Energy Information Administration (US EIA) The consumption of a resource by a country that produces it, is a good indicator of its exploration and production status. As the graph indicates, the overall proportion of total gas consumed between Colombia, China, the top 5 favoured emerging market economies, and selected Latin American countries, increases through time. The steepness of the graph indicates a strong and higher consumption of gas in recent years especially in South Africa with a 34% increase in gas consumption between 1980 and 2014. In contrast to this, Colombia shows an average 2% increase between 1980 and 2014. Not only does Colombia have one of the lowest overall volumes of gas consumed (hence low exploration and production), it does not follow the steep incline of increased gas consumption as seen in countries like, China and South Africa. 3
Renewable Electricity Net consumption (billion kilowatthours) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total petroleum consumption (thousand barrels per day) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Graph 2. Total petroleum consumption in Colombia, China, selected Latin American countries and the top five favoured emerging market economies 25000 20000 15000 10000 5000 0 Source: US EIA Year Mexico Brazil Colombia Turkey Indonesia Vietnam Egypt Venezuela South Africa China The consumption of petroleum between these countries also shows a similar trend as seen in gas consumption through the years, but at a lower rate, as indicated by the reduced steepness of the graph. Between 1980 and 2014, petroleum consumption in Colombia was at an equally average rate of a 2% increase. When compared to the other favoured market economies, Latin America and selected countries, Colombia has the second lowest average petroleum consumption; yet again, limited exploration and production of crude oil in comparison to the other countries. Graph 3. Total renewable energy consumption in Colombia, China, selected Latin American countries and the top five favoured emerging market economies 2000 1800 1600 1400 1200 1000 800 600 400 200 0 Year Colombia Indonesia Vietnam Egypt Turkey South Africa China Brazil Mexico Venezuela Source: US EIA 4
When compared to the top emerging market economies, and selected countries in Latin America, Colombia has the second lowest percentage change (2%) in the consumption of renewable energy through the years, with South Africa again showing a 34% increase in the consumption of renewable energy since 1980. Overall, Colombia s energy production and consumption is an indication of steady petroleum exploration as well as renewable energy implementation within the country, but overall global trends suggest that the transition from mainly crude oil sources to cleaner fuels is evolving at a much faster pace; hence, Colombia needs to catch up. Results from this analysis may suggest changing trading patterns as the overall leading energy source for the future looks to be swinging in favour of gas. The global consumption of natural gas has continually increased through the years and with growing population numbers, this is set to increase. Based on the data, although Colombia is following global trends, it is progressing at a much slower pace in terms of its transition from petroleum sources to gas and renewables. The transition is guided by three main factors not just in Colombia, but also across the globe. Three main themes that will govern the energy industry 1. Drive in Energy demand: According to the BP Energy Outlook for 2035, the global population is set to increase by approximately 107% over the next 20 years and with this increase in the global population, there will be an increased demand for energy. According to Spencer Dale, BP s Chief economist Energy demand will continue to rise, and that is simply because the world economy continues to grow and as it grows, it needs more energy to fuel those high levels of activity. 2. Shale revolution: The success of hydraulic fracturing round the world will play an important role in shaping the face of the petroleum industry. In a situation whereby, the global gas price makes it economically viable for hydraulic fracturing to take place, fracking could lead the way and increase the speed at which gas replaces oil as the primary hydrocarbon source. With gas being a cleaner fuel (117.0 Btu [1] ) and with potentially sufficient global gas reserves (of approximately 6972.518 TCF [2] ), shale gas could further increase global hydrocarbon production to meet predicted increasing demand. 3. Carbon emissions: Although the shale revolution and the drive in energy demand are significant factors in determining the changing face of the energy industry, CO 2 emissions might be the one determinant that will strongly drive the change from crude oil sources to gas. The need to reduce carbon emissions might facilitate a more conscious effort to implement natural gas as a primary energy source. This factor is not independent of itself and it is strongly linked to the global gas price. The economic viability of exploring and producing gas will strongly determine how quickly the transition will take effect. [1] A quad is a unit of energy equal to 10E15 (a short-scale quadrillion) BTU, [1] or 1.055 10E18 joules (1.055 exajoules or EJ) in SI units. Petroleum (161.3 Btu) Coal (228.6 Btu) [2] According to data sourced from the US Energy Information Association (US EIA) 5
How can Colombia be on par with global exploration trends Despite Ecopetrol s increased daily production in 2014 of approximately 1 million barrels per day, there is still scope for more hydrocarbon recovery following up to date exploration trends. Majority of Colombia s production has been from heavy oil, but to expand and increase its production, it has to explore its offshore and unconventional frontiers. According to Mauricio Vargas Carvajal (General Manager of Schlumberger s operations in Colombia) unconventional and offshore exploration (in the Llanos Basin [3]) are key growth frontiers that have to be exploited. Furthermore, secondary recovery (Enhanced oil recovery - EOR) in mature fields has proven successful (as seen in the water injection techniques from the Casabe oil field [4]) but the aim should be to replicate this success in larger and riskier scenarios. Graph 4. The impact of waterflooding on the rate of hydrocarbon production Source: Schlumberger report on the Casabe field (2010) To increase production, Colombia needs to focus on tertiary recovery from mature fields as well steam injection, on-site combustion etc. In terms of other factors to explore, potential within Colombia s offshore reserves have caught the eyes of the big players such as Shell [5], ExxonMobil and ConocoPhillips and there is still retained interest despite low oil prices. Colombia s offshore plays have started to show potential, but the speed of implementation is largely determined by how low oil prices go and how long they remain low for. Despite these factors, there is definitely potential in Colombia s offshore market (Petrobras s Orca-1 [6] and Anadarko s Kronos-1[7]) Another factor that affects the speed of implementation is the ease of obtaining an environmental licence. This is strongly linked to the ease of exploration in Colombia and if this is attended to, exploration in Colombia may be more attractive to foreign investors and exploration and production companies. [3] Reserves in place: Shale oil (18 TCF), Shale gas (13 billion barrels) [4] In 2004, when the Casabe Alliance was formed, production rates were 5200bbl/d. By early February 2012, these rates had increased to more than 16000bbl/d 6
Thousand barrels of oil per day Innovation is key Pacific Rubiales STAR innovation: - Technology developed by Pacific Rubiales allows for onsite combustion and allows for creating major increases in production and reserves. It combines well architecture with real time data. The advantage of this is that the heterogeneity factor usually encountered in production is removed, hence increasing the sweep efficiency from the fields. Another unique factor is that it has been adapted to the characteristic heavy crude in the Llanos Basin (high permeability, unfavourable water/oil mobility ratios and constant pressure from the infinite hydraulic thrust of aquifers) According to research carried out by Pacific Rubiales, applying the STAR technology in oil fields such as the Rubiales, Quifa and Cajua fields where there are resources of more than 12 billion barrels of oil onsite, could increase recovery by up to 50% (an extra 6 billion barrels) - From these fields alone, the reserves could be doubled. Graph 6. The impact of improved hydrocarbon resources from the Quifa, Rubiales and Casabe fields. 250.000 200.000 150.000 100.000 50.000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Year Rubiales Quifa Casabe Source: IEA-ACP [5] Shell started shooting seismic for unconventional resources in Bolivar, in the San Pablo area, in 2012 [6] The mean prospective resource for this prospect is higher than 4 TCF of gas equivalent [7] The presence of gas bearing reservoir sandstones 7
Liquefied natural gas Figure 2. The potential of LNG in Colombia 8
Conclusion Overall global trends show a shift towards cleaner fuels and this transition is guided by three main factors; the demand for energy, the shale revolution and CO 2 emissions. These three factors are all underpinned by the global price of oil/gas. Results show that Colombia is following global hydrocarbon trends, but at a much slower pace. In terms of the actual shift to cleaner fuels and higher overall exploration, production and consumption of petroleum, Colombia is currently behind its Latin American peers as well as the top five favoured emerging market economies. To fully exploit its hydrocarbon potential and keep up with changing global trends, it needs to explore its unconventional resources as well as implement secondary recovery methods from its mature fields. This can be aided by the STAR technology developed by Pacific Rubiales that showed the potential of doubling the recoverable reserves as seen in the Casabe, Cajua, Rubiales and Quifa fields. In addition to that, Colombia has potential for LNG and as it is more tradeable, this could ensure that Colombia is keeping up with global trends. It cannot currently self-fund its own LNG potential, but as the potential is evident in the Llanos basin, Colombia can strategically position itself as the country that the big players (Shell, ExxonMobil, BP) in the industry want to partner with. Taking into consideration the current economic climate, the mentioned recommendations are not an immediate short term fix/solution as there is currently no economic viability from gas and unconventional production. 9
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