Oilfield Technology - May/June 2020

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Furthermore, the International Energy Agency (IEA) advocates that
member nations should hold 90 days of supply based on the import
volumes of the previous year.
Looking around Asia, IEA members such as Japan and
South Korea have approximately twice the required level of strategic
storage. On the other hand, Australia falls far short of this target and
New Zealand’s strategic reserves are very close to, but below, the
required level. When reflecting on the COVID-crash, will some nations
rethink their requirements for strategic crude oil reserves and invest
in additional strategic storage to align with the IEA’s requirements?
This might appear to be a ‘downstream’ question, but the answer
will also be relevant to upstream operators. The COVID-crash has
reminded the industry of one fundamental: upstream, downstream
and demand are intrinsically connected and when demand
evaporates, the upstream sector will quickly feel the pain through the
domino effect.
TheendofaneraforAsiaPacificoil andgas
exploration?
Within only a few months of the word ‘coronavirus’ entering common
parlance and only a few days of the crude price crash taking WTI
into negative territory for the first time in history, it was already
expected that one third of the exploration well projects in the
Asia Pacific region will be put on hold. Cash reserves in the upstream
sector in recent months have only been at moderate levels and with
grave concerns over sustained liquidity at the current crude price,
discretionary spend and capital projects will be cut quickly and
deeply.
In comparison to the Middle East and Russia, production costs
in the region are high and less than 20% of the current slate of
Asia Pacific crude oil exploration and production projects would
break even at less than US$35/bbl. This price has frequently been
used as the ‘low’ case in recent investment planning sensitivity
analysis. A lesson from the COVID-crash might be that investment
decisions with a ‘lower’ US$20/bbl case need to be reviewed. That
pricing level would certainly usher in the end of an era for oil and
gas exploration and new production investment projects in the
Asia Pacific region. Furthermore, if global energy demand moves
away from crude oil in a quest for decarbonisation or to diversify
away from this volatile commodity, prolonged oversupply – which
will threaten additional upstream capacity investments in any region
– can be expected.
Acceleratingamove intheenergymix?
As a stark reminder that Asia has a mix of energy options, in early
April 2020 Sinopec announced the construction of five additional
LNG storage tanks and a new tanker berth at their Tianjin terminal in
China. Worldwide, natural gas and renewables have overtaken coal as
the top modes of electricity production in OECD countries. The crash
in crude oil pricing might seem like an excellent buying opportunity,
but it will also send nervous shudders around the globe, reinforcing
the commodity’s reputation for volatile pricing. What goes down with
a bump can bounce back up with a shock.
When reflecting on the lessons of the COVID-crash, long-term
planners may prefer the stability of local production in favour
of international supply chains. Diversity will be highly valued in
national energy policies. Investment in hydrogen mobility may be
pulled forward so as to decarbonise and move away from fossil fuels
altogether. COVID-19 countermeasures threw a boulder into the
water. The initial tidal wave is obvious to see but the second- and
third-degree ripples will come ashore in many unpredictable
locations, sometimes with surprising effects.
PulseEight
Dynamic Downhole Reservoir Management System
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