More than ever, petroleum is a highly competitive industry filled with risks and rewards. Growing demand is pushing companies into unexplored territory and remote regions in the arctic and far under the sea. In these harsh environments, the stakes are even higher. For new companies and existing firms, there is increasing pressure to understand driving forces within the market and to develop sustainable exploration strategies. Along with a sound business model, effective oil and gas reserves evaluation can help exploration firms balance risks and identify the largest rewards.
According to Dr. Michael C. Daly, former executive vice president of exploration for BP, the quality of resources, available technology and geopolitics are of the utmost importance. Others experts worry about how companies can comply with tighter environmental regulations while increasing production. Remote drilling locations tend to increase costs and safety concerns. This means that accurate oil and gas risk assessment is more important than ever. Increasing costs are unavoidable, and most of these expenses will be passed on to consumers.
Economists warn that the cost to produce one barrel of oil will increase by $3 in the next 20 years. At the same time, global demand will increase by 11 million barrels daily. Most of this growth is occurring in Asia. Economists who specialize in commodities have shown that gas and oil demand has parity with income in 180 countries. As per capita earnings double, oil consumption increases by an equal or greater amount. The problem is that less oil is available.
Ever since the United States reached peak oil extraction in the 1970s, dwindling supplies have been a concern that comes and goes. It is well known that most of the easy oil has already been extracted. Now, companies must driller deeper, invest in advanced technology and chase their treasure around the world. Oil is still available. Companies just need to work harder to find it. That is the overarching trend that will change the industry in 2050 and beyond.
In the near future, gas and oil exploration will increase in unexplored frontiers and in near-shore locations that can be re-explored with new 3-D seismic maps and new drilling technologies. Among these unexplored areas are deep waters off the coast of Africa and South America, arctic ice fields and parts of the continental shelf.
After 40 years of deepwater drilling, these reserves have accounted for up to 50 percent of annual discoveries. Although this sector has not hit a plateau, experts expect deepwater exploration to gradually decline over the next two decades. Arctic sub-ice is prime for exploration, but Russia is the only oil producer with clear mineral rights. Although arctic drilling has not begun in earnest, the industry is expecting a rapid increase in regional discoveries followed by a sudden fall.
The Congo and Africa’s ancient sub-Saharan sea beds are the only major unexplored areas where break-even costs are expected to decline slightly between now and 2035. Rock volume exploration and the controversial process of hydraulic fracturing, better known as fracking, are also expected to increase. Geoscientists have identified promising deposits in North America, Russia, Siberia and the Middle East. The next step is to use hydrocarbon resource estimation processes to identify potential sweet spots for gas and oil production.
Eventually, fossil fuels will be exhausted, or the process of extracting, transporting and refining these products will consume so much energy that it is no longer cost-effective. As the price of gas and oil increases, new fuels will be developed, and petroleum products will become an alternative fuel. Until then, companies will continue looking in unexpected places and using new methods to detect hidden treasure miles under the ground and deep beneath the sea.