Business

Tuesday June 12, 2007

Issues facing the oil and gas industry



KUALA LUMPUR: Demand for oil is surging and unless significant investments are made and technology improves, the high demand growth will not be sustainable, according to a captain in the oil and gas industry.

“Society is concerned over increased carbon dioxide emissions and other environmental consequences of energy development, and these concerns must be addressed,'' ConocoPhillips chairman and CEO James J. Mulva said.

In his speech on the state of the oil and gas industry, Mulva said a second obstacle was the challenge to meet demand growth.

With the industry needing to replace well over 100% of its current production based on natural declines in production and new demand, Mulva said vast new areas had to be opened and new technology needed to access more remote locations.

According to the International Energy Agency, US$20tril in investments are needed through to 2030 and of this, Mulva said US$8.2tril would be for oil and gas development and infrastructure.

With today's robust annual capex growing in the future, Mulva asked whether international oil companies (IOCs) would be allowed to invest in the right places.

“Currently, only 7% of the world's oil and gas resources are fully available to IOCs for exploration and development,'' he said, adding that partnerships in Russia would enable IOCs access to a further quarter of oil and gas resources.

“In cases where IOCs are granted new licences, typically they are for the more challenging areas, with complex geology, remote locations and higher costs,'' he said.

On costs, which have been steadily rising, Mulva said new technology was no longer offsetting the cost of production as it did in previous decades.

“This means that a great deal of innovation will be needed to push the frontier and to make it economic to develop resources located in deeper water, more challenging reservoirs and more remote locations like the Arctic,'' he said. Another challenge Mulva highlighted was human capital, as the industry would be running short of highly skilled personnel.

“More than half of the current technical workforce will reach retirement within the next 10 years. In the future, we will be using new strategies to recruit and retain people, and utilise them in more efficient ways,'' he said.

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