How shifts in energy markets present an opportunity to invest in a sustainable future.
Lower oil prices will likely be with us for the next several years, given how market cycles tend to have lags. The oil and gas industry faces a choice: Adopt a defensive crouch until a recovery takes hold or push forward and invest in a future of sustainable energy.
Natural Gas in Demand
The natural gas market behaves differently than oil, especially in the U.S., which creates some investment opportunities. There are several drivers of gas demand: The petrochemicals industry is expanding on the back of lower gas prices; gas promises to be the “next big thing” in power generation; and the liquid natural gas (LNG) export push has continued to gain momentum and could create some additional demand.
So as we explore less for oil, where are the opportunities in gas development? First, wherever ethane, propane and other gas liquids can be found. Key areas of focus will be greater investment in more efficient gas-separation processes and getting these liquids to market, as there is no shortage of petrochemical interest.
Second, natural gas use for power and fuel is considered by many to be the savior of our U.S. environmental footprint. But it would incorrect to assume that it is available anywhere and everywhere in the country — it isn’t in the United States, and surely not globally.
With major areas of coal-fired generation looking to make the switch to gas, effective exploration and delivery in these new areas will demand attention in the market. This is not a small issue; it’s likely to drive exploration for gas in only some areas, pushing up prices up in those regions more than many would anticipate.
In those new exploration areas, the lack of infrastructure will drive on-site power generation and the utilization of associated gas for power — replacing much of the diesel. This will be due to both economic need and environmental regulation.
Finally, LNG exports also represent a potential investment driver. Still, once the facilities already under construction in the United States rush to completion, there could be a slowing of investment interest. I believe there will be three or four facilities built and then a significant pause to “assess” by the market.
Renewed Interest in Enhanced Oil Recovery
Another area of technology that will command a lot of attention in the era of lower oil prices is enhanced, or tertiary, recovery of oil. That may sound counterintuitive, but oil and gas operators will be doing whatever they can to sweat existing assets to maximize the productivity of the wells that have already been drilled.
Beyond conventional EOR development, carbon capture, utilization and storage (CCUS) will become increasingly explored in the market. Through this process, we can capture CO2 from fossil sources, process CO2 and deliver it to geological formations that have oil currently in place and thus enhance the recovery of that oil. It represents an important opportunity to achieve oil recovery and carbon capture in the same process.
If low oil prices are likely to be around for a while, why not invest in clean fossil fuels and a longer-term future of sustainable energy?
(Top image: Courtesy of Thinkstock)
Charles McConnell is Executive Director, Rice University Energy and Environment Initiative. He previously served as Assistant Secretary for Fossil Energy at the Department of Energy