As the world presses ahead with the energy transition, around $14trn of upstream oil and gas assets face uncertainty, a new report by consultancy Wood Mackenzie said.
Despite the rise in oil demand for another decade or more, Woodmac believes that if the energy transition push becomes more decisive, oil demand and prices would fall rapidly later this decade. Gas demand and price, however, would be more resilient, it said.
Woodmac sees investments shifting to gas, ending oil’s long supremacy. However, the industry will have to figure out the conundrum of weaker economics if the giant gas projects the world needs are to happen.
In either scenario there is still a huge amount of upstream value on the table.
Wood Mackenzie estimates the range of pre-tax future valuations for upstream is $14trn – from $9trn to $23trn. On a post-tax basis, operators’ share of this economic rent ranges from $3trn to $9trn.
“The industry now finds itself having to supply oil and gas to a world in which future demand – and price – are highly uncertain,” said Wood Mackenzie vice president Fraser McKay.
“The range of possible outcomes is dizzying. But the world will still need oil and gas supply for decades to come, and the scale of the industry will remain enormous.”
For the biggest players, new energies will play an increasing role, but this is a not an option for many industry participants.