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Witnessing the ongoing transformation of the oil and gas industry

04th October 2017

Alessandro Blasi, senior programme officer, of the International Energy Agency shares his thoughts on the transformation in the oil and gas sector

Alessandro Blasi, senior programme officer, of the International Energy Agency shares his thoughts on the transformation in the oil and gas sector

Alessandro Blasi, senior programme officer, of the International Energy Agency
Alessandro Blasi, senior programme officer, of the International Energy Agency

The last few years have been particularly challenging for the oil and gas industry. From the natural gas shale revolution beginning about a decade ago to the dramatic shale-oil discoveries, the industry has witnessed spectacular technologydevelopments, such as including hydraulic fracturing and horizontal drilling. In just five years between 2008 and 2014 US shale oil production rose from near-negligible levels to almost 4 million barrels per day.

This unexpected ramp-up shook up global energy markets. The sudden emergence of US shale producers disrupted market balances even as producers in the Middle East and Russia continued to pump at a record pace. However, it now appears their predictions were wrong. Oil and gas companies are undergoing a transformation. 

Financial discipline, cost-control measures and employee reductions have all played an important role in helping the industry navigate through these turbulent times. As we described in our analysis in the World Energy Investment 2017, something else happened: corporate strategies and investment priorities also shifted. 

Companies have significantly changed the way they pick projects and execute on them. For example, conventional onshore development has shifted towards brownfield and satellite fields to minimise capital spending. Meanwhile the offshore industry is experiencing even more rapid change as companies have scaled down projects, introduced strict standards for facilities and equipment and optimised project design. In tandem with this shift in strategy, global upstream costs have fallen both in the US shale industry and globally. 

The fundamental question that the industry now faces is to what extent these cost reductions can be sustained in the future. Standardisation of equipment and operations, improved design, efficiency in projects and corporate activities, integrated approaches in supply chains and increased use of digital technologies are all areas that have contributed to bringing costs down.