The future of energy could be offshore

Paris-based energy think tank, the International Energy Association (IEA) forecasts that energy produced offshore would become an important source of renewable energy as more crude exploration activities move offshore.

Currently, more than a quarter of oil and gas supply is produced offshore, mostly in the Middle East, the North Sea, Brazil, the Gulf of Mexico and the Caspian Sea. While offshore oil production has been relatively stable since the year 2000, natural gas output from offshore fields has risen by more than 50 percent over the same period. Offshore electricity generation, mainly from wind, has increased rapidly in recent years, notably in the relatively shallow coastal waters of Europe’s North Sea.

Offshore wind is a rising force says the IEA, but remains for the moment a relatively marginal one at 0.2 percent of global electricity generation; wind and other marine technologies face stiff competition from a range of onshore options, including other low-carbon sources of generation

“In our projections to 2040, the amount of energy-related offshore activity is poised to increase in both scenarios, although the fortunes of oil, gas and wind power vary depending on the policies in place. This resilience is good news for the offshore supply and services industry; the world’s continued need for offshore energy is also good reason for regulators to pay close attention to operational and environmental performance.

“In the New Policies Scenario, in which we explore the evolution of the global energy system in line with existing policy frameworks and announced intentions, offshore oil production edges higher, while gas surges ahead to become – in energy-equivalent terms – the largest component of offshore output. Generation from offshore wind rises by more than ten times to 2040, helped by supportive policies in Europe, China and elsewhere.

The organisation further says that in a Sustainable Development Scenario, in which the world gets on track to attain its climate, air quality and energy access goals, the balance of offshore activity shifts, but the overall level remains substantial. By the 2030s, offshore investment in this scenario – currently heavily weighted towards oil – is split into three roughly equal parts as oil and (to a lesser extent) gas output growth is lower than in our main scenario, while offshore electricity generation grows twice as fast and provides 4 percent of global power generation by 2040.

However, the costs of many offshore oil and gas projects have come down sharply in recent years, as companies try to ensure their viability in a shale-inspired lower price environment. In the aftermath of the oil price fall in 2014, proposed new deepwater projects were generally among the first to be delayed or cancelled as the industry moved towards shorter cycle investments, including shale.

But offshore projects are now coming back into the picture, IEA says and typically looking much leaner and fitter than they did before: only the best projects are going ahead, but capital investments in the Norwegian offshore and in the US Gulf of Mexico that once required a breakeven oil price of $60-80/barrel are now claimed to be robust at $25-40/barrel.

It avers that designs are being simplified, standardised and (in some cases) downsized, and a large overhang in the market for offshore services and equipment is also helping to exert downward pressure on costs – although this could be reversed as activity levels pick up.

“Digitalization of offshore operations is being widely pursued as the next frontier for efficiency gains and cost reductions. Compared with the slump years of 2015-17, a significant near-term rise in offshore hydrocarbons investment is essential to balance the market to 2025 in both scenarios,” says the IEA.

In a world in which natural gas demand rises by almost 50 percent to 2040 and oil consumption continues to grow, the interest in offshore hydrocarbon resources remains strong. Shallow water oil production from more mature basins falls in the New Policies Scenario, but this is offset by a rise in deepwater output. Although exploration activity has tailed off recently, deepwater has accounted for around half of discovered oil and gas resources over the last ten years.

ISAAC ANYAOGU