Trends Shaping Today's Oil And Gas Industry
The Oil & Gas industry has been one of the largest industries globally for decades. It would not be incorrect to say, all the other industries are dependent, in some way or the other, on the Oil & Gas Industry. The industry has seen tremendous growth over the years driven by increasing demand due to an increase in global population &drastic improvements in living standards.
Oil & Gas in India Today & Tomorrow
India is on a growth spree & is pacing to drop the tag of a “developing nation.” There are large investments in all sectors of the industry with major global players looking to tap this vast market. We are witnessing a rapid upliftment of the previously low-income groups and their lifestyle & spending power is improving and increasing. This translates into an increased demand for energy– to cope with this demand; large investments are currently underway and new investments to the tune of $80 Bn are planned in the next 2 to 3 years. This too may not be enough to meet our projected energy needs with an expected 165% increase in demand by 2040, when we would consume roughly 11% of energy produced globally.
An important & common comparison made is with our close neighbors, China. The petrochemical production, especially steam crackers, can be an indicator of a country’s economy. When compared with China, India has about 10% less population while production of all major petrochemicals & the number of steam crackers in China is 4-fold that in India. The gap is alarming! This comparison is a good metric to estimate the growth potential of India– there is an underlying market waiting to be tapped.
The Petroleum Ministry & Oil & Gas giants in the country have mapped the demand-supply deficit with respect to fuels & petrochemicals/chemicals in the near future & are working toward bridging this gap through major expansions among several refineries as well as through new large grassroots refineries &petrochemical complexes in the country. Some of the units being expanded are the IOCL Refinery sites pan India, the grassroots HPCL Rajasthan Refinery Ltd, the mammoth Ratnagitri Refinery & Petrochemical Complex, grassroots CPCL Refinery, expansions in ONGC &OPaL units in parallel to large investments from private players like Reliance Industries Limited, Haldia Petrochemicals Ltd., OPAL, HMEL etc.
The buzz in the air, especially inside younger minds, is the question, “Are renewables replacing the Oil & Gas Industry?”
Indeed, there is a drive to utilize renewables to the fullest to help bridge global energy demand. An increased investment in the renewable sector can be attributed to various reasons. One reason is the recent fall in Oil & Gas prices whichimpacted the market to some extentand generated surplus funds for those utilizing oil and gas as a feedstock. The increased money at hand allowed for investments in new avenues like research & development (R&D) in the renewable energy sector.
It is important to understand that this R&D primarily aims to help bridge the present deficit which is caused by depleting fossil fuel reserves and only provides some respite to limited natural resources.
The view of a shift toward renewable fuels & electric cars creates a stir that the Oil & Gas market will take a huge dent. It’s true that the growth opportunities in renewables cannot be ignored & most majors including those of Oil & Gas are committing a substantial investment to their renewable portfolio. Additionally, tighter environmental policies are helping propel the movement toward renewable energy.
It’s important to remember that India is the 4th largest consumer oil in the world and 29% of the energy produced in the country today is extracted from oil. Even with the emergence of renewable energy resources, all crediblestudies clearly show that even by 2040, Indian will still derive a quarter of its energy requirements from oil.
Agreeably renewable energy holds promise, yet realistically today renewable energy cannot contribute anywhere as much to the domestic energy mix as traditional fuels can. This is made all the more obvious by the fact that renewable energy demands the creation of an immense infrastructure whose developmentis in a nascent stage and the erection of which nationwide will take decades and likely cost billions of dollars if not far more.
Much of the infrastructure necessary to take advantage of traditional fossil fuels in most parts of the world was created at the beginning of the last and has been vastly enlarged and strengthened since. The push for renewable energy, on the other hand, is less than 2 decades old and has only gained momentum over the past few years; building an infrastructure that allows for the widespread use of renewable energy will likely take as long to enlarge as did the creation of infrastructure that allows the exploitation of fossil fuels. More importantly, several technological advances have to be made before renewable energy becomes ubiquitous. Such advances will in all likelihood be made gradually over the next few decades and not over the next few years as some imagine. Hence most qualified studies clearly show that even by 2040, renewable energy will be producing only 13% of the energy consumed in India, far less than does oil today
Consider for example, can all the vehicles on the road be replaced by electric cars? The answer is probably yes but definitely not in the short or visible mid-term. Even if a large transformation does occur (which is projected to be 6% of the global fleet by 2035), it must be noted that a small fraction of the Oil & Gas is actually utilized for vehicle fuel. The expanse of the Oil & Gas market is vaster than the use of oil and gas as fuel because oil and gas are the building blocks of much of our surroundings.
Also consider that with the advent of electric cars, we will still be dependent on the Oil & Gas market for the plastic & polymeric parts that comprise a significant part of every vehicle. Also, most electric vehicles are hybrids and this allows them the flexibility to run on the fuels used today. The question also arises, how will we generate electricity to support the electric vehicle charging infrastructure? Here again, we must look to the use of gas to generate energy.
Another factor to look into is the cost of electric vehicles. There is an upward trend in many parts of the world in the use of electric vehicles. However, these vehicles actually cost significantly more than they are sold for but are subsidized by the government. In fact, it has been observed, that if this subsidy is not passed on to buyers, they will not purchase electric vehicles.
Hence the concept of renewables serving a dual purpose emerges. Firstly, they are primarily aimed at helping fill up the supply deficit for the ever-increasing demand on the fossil fuels. Secondly, they are believed to be a cleaner source of fuel as they produce lower emissions. The Paris Agreement aimed to target a global temperature rise of not more than 2°C by this century. However, the current trend is projecting a temperature increase in excess of 5°C. Renewables in the energy pool can help come closer to achieving the targeted temperature set forth in the Paris Agreement.
In conclusion, the Oil & Gas sector is a firmly rooted sector which cannot be replaced - it will, however, be supplemented with the help of renewables to reduce pressure on limited resources in the times to come. The renewables, as they currently stand, are at a stage of infancy. The technology is yet to mature! Energy efficiency & storage in case of renewables are major challenges! Electric cars have a short running distance – hence hybrid cars that run on fuel are a smarter choice. The Oil & Gas market is here to stay, serving as the base for polymers & petrochemicals something which renewable energy cannot do!
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