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Schlumberger Chief Forecasts Higher Gas Demand Growth

The "fundamentals" for oil and gas remain unchanged, but new opportunities have arisen because of "technology or changed circumstances," Schlumberger Ltd. CEO Andrew Gould said Monday.

The macro environment for oil and has evolved but the "theme" of finding and developing hydrocarbons remains as valid today as it ever was, he told the audience at the Howard Weil Energy Conference in New Orleans.

While high storage levels and abundant supplies have kept U.S. gas prices "subdued," the spike in gas demand last year was the highest year/year since 2007, Gould said.

There also was an "astonishing rebound in oil demand" in 2010, which was the second highest in 30 years. "Spare capacity is not enough to absorb a rapid increase in demand; prices are beginning to reflect a fear of supply shortages."

Longer term, Gould holds with the expectations that fossil fuels will be the dominant energy sources to 2035. And world events will impact what fuel sources become dominant.

"A reassessment of the energy mix following the nuclear accident in Japan is likely to confirm higher demand growth for natural gas," said the CEO. "Absent a second economic shock and a further drop in demand, the industry will face an increasingly harder task of turning resources into reserves, and reserves into production..."

The industry overall is impacted, he said, because national oil companies (NOC) and independents today represent more than 80% of total industry capital expenditures (capex).

"No less than 30 oil and gas companies have annual capex budgets in excess of $4 billion -- up from only 10 in 2001," Gould noted. "While not wishing to embarrass any of my customers, I would add that many greenfield projects suffer significant cost overruns. Indeed, as a general rule 30% of such projects experience budget overruns of 50%."

The reliability of technology, operating efficiency in project planning and execution -- and new U.S. regulations -- have added "new dimensions" to working offshore, said Gould.

"Stricter standards of regulation will require much improved process from the service industry," he said. "Technology will be needed to improve both safety as well as operational performance, and capability will need to be managed through improved processes."

And not to be overlooked are "increased drilling concerns" for reserves already in production, he added.

"Prolonging their exploitation and increasing their recovery represents a significant opportunity," Gould said, "and it is here that increased drilling intensity is likely to make the biggest difference in the short to medium term."

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