ITP MEDIA GROUP / BUSINESS DECEMBER 2021 • VOL. 17, ISSUE 12 NAVIGATING THE LABYRINTH THE PROMISE OF A GREENER FUTURE IS CLEAR, BUT THE INDUSTRY WILL FACE FALSE STARTS, DEAD ENDS AND WRONG TURNS AS IT NAVIGATES THE ENERGY TRANSITION MAZEDRILL DEEPER The oil and gas sector is the heartbeat of Middle Eastern economies. Unlock OilandGasMiddleEast.com to keep your finger on the pulse Projects Empower your decision-making with timely updates about the latest upstream oil and gas projects in the Middle East. Events Take advantage of early bird access to be first in line for the industry-leading Middle East Energy Awards. Subscribe now to get every last drop of upstream insight from OilandGasMiddleEast.com, with exclusive benefits Lists Read our comprehensive annual rankings of the Middle East’s most powerful people and companies across upstream. Multimedia platforms Get insider information through our global webinars, podcasts, and video interviews with upstream leaders. 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AN ITP MEDIA GROUP PUBLICATIONDECEMBER 2021 / Volume 17 Issue 12 18 ADIPEC 2021 review 26 Awards update 14 Shell: Energy’s uncertain future 06 The industry in numbers Highlights in this issue: 18 COVER STORY 3 IN THIS ISSUE oilandgasmiddleeast.com DECEMBER 20214 IN THIS ISSUE oilandgasmiddleeast.com DECEMBER 2021 DOWNLOAD IT TODAY ON YOUR iOS, ANDROID OR KINDLE Also inside: App 30 06 / In numbers New oil cost drops will be the downfall of climate policies 14 / Shell: The uncertain future for energy Shell discuss the winding path to the energy transition for the oil and gas industry 14 12 28 8 KEEP UP-TO-DATE For all the latest news, check out www. oilandgasmiddleeast .com 26 / Awards update Don’t miss this important update about the Middle East Energy Awards! 18 / ADIPEC 2021 review Check out a recap of ADIPEC 2021 26 Last month 8 / Industry Outlook Afterthe worst year in a decade, energy efficiency trends are expected to return to normal 12 / Comment How to solve the oil and gas industry’s emissions challenge with AI 28 / Sustainability The economic impact of carbon pricing policies 32 / Project focus Everything you need to know about the Marmul Main Production Station 42 / Five minutes with Learn about sustainable engineering with AVEVA 30 / Sustainability Why the oil and gas industry needs to embrace digitalisation5 oilandgasmiddleeast.com DECEMBER 2021 EDITOR’S LETTER E very edition of ADIPEC has a specific takeaway. Yes, there are thousands of exhibitors, plenty of conferences and discussions, but a central theme always emerges. This year, the theme surrounded the prospect of a realistic energy transition. Having spoken to experts, industry leaders and analysts across the sector, I’ve come to one main conclusion: the path to a cleaner energy landscape is unclear. We know where we want to go, but not how to get there. There are reasons for the oil and gas industry to be defensive, or as OPEC Secretary-General Mohammed Barkindo said, to hear “alarm bells” after COP26 appeared to cast aside oil and gas from the future energy mix. Questions will persist: How do we address energy poverty while decarbonising? Which technologies are the most effective to lower greenhouse gas emissions at scale? How can the oil and gas industry participate in the global climate action movement? Will it even be welcome? I don’t have all of the answers, but I have delighted in asking these questions (and many more) throughout this issue. It is important that we continue to ask questions without easy answers, and make our way through the energy transition with an eye on future and a positive mindset looking at sustainability and decarbonisation as opportunities, not burdens. I’ve spent much of my time at the helm of this brand commenting on the energy transition, and now it seems its my turn to transition to something new. This is my final issue as the editor of Oil & Gas Middle East, though I will remain at ITP Media Group as the Group Editor for Energy & Construction. I am leaving this title in the capable hands of our incoming editor, Matthew Amlôt, who has contributed much of the content in this month’s issue. Thank you to all of the readers, industry professionals, analysts and more who helped to make my time at Oil & Gas Middle East so memorable. Please welcome Matthew just as warmly! Carla Sertin Group Editor Energy & Construction A note on the energy transition in my final editor’s letter One more thing! SUBSCRIBETo subscribe to Oil & Gas Middle East, or other ITP Business titles, go to: www.itp.com/subscriptions. PO Box 500024, Dubai, UAE Tel: 00 971 4 444 3000 Web: www.itp.com Offices in Abu Dhabi, Dubai, London & Mumbai ITP Media Group CEO: Ali Akawi Managing Director: Alex Reeve Editorial Group Editor: Carla Sertin Tel: +971 4444 3265 email: carla.sertin@itp.com Editor: Matthew Amlôt Tel: +9714444 3264 email: matthew.amlot@itp.com Advertising Group Sales Manager: Mark Grennell Tel: +971 4444 3202 email: mark.grennell@itp.com Photography Senior Photographers: Efraim Evidor, Adel Rashid Staff Photographers: Yuliya Petrovich, Fritz John Asuro, Ajith Narendra Production & Distribution Group Production & Distribution Director: Kyle Smith Production Manager: Denny Kollannoor Production Coordinator: Manoj Mahadevan Senior Image Editor: Emmalyn Robles Circulation Distribution & Warehouse Manager: Evijin Pathrose Circulation Executive: Rajesh Pillai Distribution Coordinator: Avinash Pereira Marketing Director of Awards & Marketing: Daniel Fewtrell ITP Group CEO: Ali Akawi CFO: Toby Jay Spencer-Davies The publishers regret that they cannot accept liability for error or omissions contained in this publication, however caused. The opinions and views contained in this publication are not necessarily those of the publishers. Readers are advised to seek specialist advice before acting on information contained in this publication which is provided for general use and may not be appropriate for the reader’s particular circumstances. The ownership of trademarks is acknowledged. No part of this publication or any part of the contents thereof may be reproduced, stored in a retrieval system or transmitted in any form without the permission of the publishers in writing. An exemption is hereby granted for extracts used for the purpose of fair review. Published by and © 2021 ITP MEDIA Group FZ-LLC. NEW OIL COST DROPS WILL BE THE DOWNFALL OF CLIMATE POLICIES For climate initiatives to succeed, regulators need to target demand rather than supply. W ith the cost of new oil projects falling significantly, climate policies are at risk of failing, new research suggests. Data from energy research firm Rystad found that the average breakeven price for new oil projects has fallen to around $47 per barrel, an eight percent drop over the past year and 40 percent down since 2014. Correspondingly, Rystad’s data found that the oil price needed to produce 100 million barrels per day (bpd) has also fallen dramatically. In 2014, the firm found that an oil price of $100 per barrel was required to produce 100 million bpd in 2030, but in 2018 the price had fallen to $55 per barrel, and in 2020, fell again to $45 per barrel. For now, the firm is holding the $45 per barrel figure for 100 million bpd of production in 2030 steady. 6 IN NUMBERS oilandgasmiddleeast.com DECEMBER 2021“We maintain the required oil price to produce 100 million bpd in 2030 unchanged, despite the declining average breakeven price of new oil projects, because the potential supply for 2030 has decreased since last year due to delays in sanctioning activity and conservative shale producers,” the firm wrote in a research note. One factor driving this dynamic has been increases in the total amount of global recoverable oil assets. While in 2014, the firm estimated that 2030 total liquid potential was 104 million bpd, by 2018 Rystad increased its prediction significantly to 135 million bpd, mainly due to increased potential volumes from North American shale oil. Since then, potential supply estimates have dipped amid low energy usage over the past two years due to the COVID-19 pandemic and as the industry focus on the energy transition increases. In 2020, Rystad revised its potential 2030 supply down to 116 million bpd, and in 2021 further revised it down to 113 million bpd. “As the theoretical supply in 2030 exceeds the demand trajectory by more than 10 million bpd, climate policies should be more demand-focused rather than supply-focused. Supply cuts enacted within one country will largely be countered by supply increases from other countries, while demand cuts are not met with new sources of demand,” says Espen Erlingsen, head of upstream research at Rystad Energy. Onshore Middle East is currently the cheapest source of new production, with an average breakeven price of around $32 per barrel, and is also the segment with one of the largest resource potentials. Meanwhile, offshore deepwater is the second cheapest source of new production, with an average breakeven price of $36 per barrel, according to Rystad. The firm said that between 2014 and 2018, shale oil and OPEC were the clear winners, with breakeven prices falling while potential volumes increased. For shale oil, the breakeven price drop has been particularly high. In 2014, Rystad estimated the average breakeven price to be $82 per barrel. Since then, the breakeven price has continued to fall, reaching an average of $37 per barrel. Potential shale oil supply estimates have not remained so rosy, however, with the industry upended last year as the COVID-19 pandemic caused oil prices to drop significantly. The upset hit shale oil particularly hard, as the industry required a higher cost to produce than any others, lacked significant state support, and was more highly leveraged, which has led to a removal of future potential shale oil supply from the market. This led to a drop in Rystad’s estimate of shale oil production potential in 2025 from its 2018 estimate of 22 million bpd to around 16 million bpd currently. COP26 PLEDGE: COULD HELP, MORE EVIDENCE NEEDED While on the supply-side challenges remain in the fight against climate change, the COP26 summit consensus does present some positive outcomes. Prior to the summit, Rystad’s research pointed to a likely global warming level of 1.8C, significantly over the 1.5C limit that scientists have frequently pointed to as essential. Commitments by global leaders at COP26 to cut methane emissions, amid faster than expected solar photovoltaic manufacturing capacity and electric vehicle production, could reduce the rise in temperature to 1.6C, however. “Considering all of the pledges in COP26, along with our energy demand forecasts and other factors, total emissions are poised to decline fast enough to be closer to a 1.6C scenario than before. More evidence of action is needed but it is not a stretch to say that if promises are kept the temperature rise can be limited to less than we previously anticipated. Even 1.5C is not totally out of reach,” says Rystad Energy’s chief executive officer Jarand Rystad. Furthermore, the commitment to stop deforestation by 141 countries at the summit, representing 91 percent of global forest areas, embodies a significant contribution to the fight against climate change, Rystad added. Deforestation currently contributes around five gigatonnes of emissions per year, or 0.1C of global warming over a 45-year period. The acceleration in the deployment and manufacturing capacity for wind and solar power will significantly impact the demand for fossil fuel energy in the coming years. Demand for fossil fuel energy is set to fall from 85 exajoules in 2021, to 60 exajoules in 2030, and further to only 16 exajoules in 2040, Rystad said. The pledges from the Glasgow Climate Pact, along with Rystad’s energy demand forecasts and other factors, leave the firm believing that total emissions can decline fast enough and increase the likelihood of the world maintaining global warming to 1.6C. 7 IN NUMBERS oilandgasmiddleeast.com DECEMBER 20218 INDUSTRY OUTLOOK oilandgasmiddleeast.com DECEMBER 2021 P rogress in energy efficiency is recovering in 2021, a positive after the sector witnessed its worst year in a decade in 2020, but still needs to double for net zero emissions by 2050, the International Energy Agency (IEA) said in its Energy Efficiency 2021 report. and 2016. While these figures represent encouraging signs, the IEA notes that it is still well below the four percent improvement the agency described in its Net Zero Emissions by 2050 Scenario over 2020-2030. Challenges caused by the COVID-19 pandemic last year caused energy demand to plummet and prices to fall, slowing The efficiency race is back on After the worst year in a decade, energy efficiency trends are expected to return to their 10-year average, according to the IEA. Global energy intensity, a measure of an economy’s energy efficiency, is expected to improve by 1.9 percent in 2021, after improving by only 0.5 percent in 2020. This represents a return to the energy efficiency progress of the past 10 years, with energy intensity improving by an average 1.3 percent over the past five years, and 2.3 percent between 2011 9 INDUSTRY OUTLOOK oilandgasmiddleeast.com DECEMBER 2021 technical efficiency enhancements while economic activity shifted away from less- energy intensive services. The IEA warns that while the improvement in this year’s energy intensity is a positive, it remains unclear if this represents the start of a sustained recovery. However, economic recovery plans enacted in response to the COVID-19 pandemic focusing on efficiency, investment priorities shifting to sustainability, and new climate change targets, do offer “some encouraging signals,” the agency says. While the IEA says energy efficiency needs to double for net zero emissions by 2050, annual investment in energy efficiency will need to triple by 2030. In 2021, government policies are expected to help energy efficiency investment to increase to almost $300 billion, a 10 percent increase. Much of the growth in investment has been focused in Europe, which suggests that similar policies to those adopted by the continent will need to be implemented elsewhere if climate goals are to be reached. Improving government policy focus on energy efficiency would bring significant positives economical. With increased spending on retrofits, more efficient appliances and other measures, the IEA believes that the number of jobs created by 2030 would triple. Helpfully, many of these jobs would be in construction, and the installation of heating, cooling, and hot water system, which could match existing skill sets. In cases where there is a mismatch, governments can play a role in sponsoring training programmes and preventing a skills shortage. The IEA notes that focusing on energy efficiency offers some of the fastest and most cost-effective options in the fight to reduce global CO2 emissions and slow climate change. In the group’s 2050 net zero emissions scenario, the global economy’s energy intensity falls by 35 percent by 2030, driven by energy efficiency and electrification. By improving energy efficiency, renewable energy sources become more competitive, and can outpace demand for energy as higher efficiency will result in lower demand growth. The IEA’s scenario expects the global economy to grow by 40 percent by 2030, but with seven percent less energy demand despite higher populations and income levels. Energy efficiency gains have been driven by mandatory standards and labelling rules for key appliances. These standards have resulted in the energy consumption of major home appliances, such as air conditioners, refrigerators, and washing machines, dropping by over 50 percent. The IEA says that this gain has been achieved even as the prices for the same goods fell by an average of two to three percent per year. Consumers are, therefore, the main beneficiaries of these policies, enjoying both lower energy costs, due to increased efficiency, and lower prices. While this trend has been a significant boon for the fight against climate change, the IEA warns that achieving these results is a lengthy process, with it taking years before existing inefficient stock is replaced. In one analysis of nine countries and regions, including China, the EU and the US, overall energy reduction caused by efficiency standards was found to have helped save around 1,500 terawatt-hours of electricity, or the equivalent amount of electricity to the total generation of wind and solar power in those countries in the same year. Energy efficiency programmes in countries with the longest running programs were found to have reduced total electricity demand by around 15 percent. The IEA notes that if all countries could experience a similar 15 percent improvement, global electricity consumption could have dropped by 3,500 terawatt-hours, an equivalent figure to halving China’s current electricity consumption. Appliance energy efficiency is also expected to be improved by an increase in the deployment of internet-connected appliances, devices and sensors, with the number of these devices expected to reach nine billion this year, overtaking the number of people on the planet. A majority of these are measuring devices, such as smart meters, but the sector is expanding. The IEA expects the deployment of smart appliances to double from 2020 to 2021, while the number of smart lighting devices is approaching one billion. With these appliances being more digital, greater monitoring is possible, allowing for efficiency improvements through measurement and improved control. In one example, the agency notes that building energy management systems have been shown the ability to deliver between 20 and 30 percent energy savings from installing more efficient appliances that offer a greater degree of monitoring and control. Next >