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12The Challengeof Transition
Lord John Browne o
Madingley on the
current energytransition and the
challenges ahead
18Energy
Transition
Why oil and gas companies
are in a prime position to
capitalize on alternativesources o energy
24Sustainably Managinga Strategic Resource
Water issues carry
signifcant business risk
and must be integratedinto the strategic planning
o energy companies
PLUS
30 IEAs Fatih Birol on thenew energy landscape
36 Waste gas: a crucial pieceof the energy poverty dilemma
42 The importance of R&D andwhat oil and gas companiesneed to prepare for
Energy PerspectivesWinter 2012 Published by Schlumberger Business Consulting
SBCEnergyPerspectives
Winter2012
An introduction to
low-carbon energy
technologies PAGE 4
Leadingthe EnergyTransition
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EnErgy PErsPEctivEs
Managing Editors
Hermes Alvarez
Opoku Danquah
Board of Editors
Muqsit Ashraf
Olivier Perrin
Antoine Rostand
Arnold Volkenborn
Stephen WhittakerSchlumberger Director o Corporate
Communications, Energy Perspectives
Editor-in-Chie
associatE Editors
Amy Donahue
Kathryn Hite
Christopher Khoo
Laurent De La Porte
Peter von Campe
contriButing authors
Hermes Alvarez
Antoine Aris
Muqsit Ashraf
Renaud Brimont
Vivek Chidambaram
Rakesh Jaggi
Amy Long
Antoine Rostand
Tamas Seregi
Olivier Soupa
Peter von Campe
dEsign
The Pohly Company
Energy Perspectivesis managed by Schlumberger Business Consulting (SBC). SBC is the management consulting arm o Schlumberger.
The two entities do not share condential client inormation, and they implement strict inormation security measures to protect client
data. Views expressed in Energy Perspectivesbear no impact on day-to-day SBC or Schlumberger business, represent the current judg-
ment o the authors at the date o publication, and do not necessarily refect the opinions o Schlumberger.
Printed on recycled paper.
aBout EnErgy PErsPEctivEs
Energy Perspectivesis published by Schlumberger Business Consulting
to communicate business solutions and innovative viewpoints on todays
biggest strategic, operational, and organizational issues acing energy
industry decision makers and thought leaders. Energy Perspectivesis
distributed by Schlumberger Business Consulting to the energy industrys
most prominent decision makers and thought leaders globally. For
inormation on how to receive Energy Perspectives, request permission
to republish an article, or comment on an article, please email
aBout schluMBErgEr BusinEss consulting
Schlumberger Business Consulting is all about transorming the worlds
energy business or the 21st century. We are a management consulting
rm with the strategic and operational insight, global reach, and practical
experience needed to provide a material impact on the oil and gas sector.
In 2004, Schlumberger Business Consulting was established under the
sponsorship o Schlumberger Chairman and ormer Chie Executive OcerAndrew Gould to help oil and gas companies realize dramatic perormance
improvements and sustained growth. SBC comprises more than 200
consultants recruited rom the best consulting rms, energy companies,
and academic institutions globally. Operating rom 13 major oces and
various satellite oces worldwide, SBC engages clients on a wide
spectrum o management issues, ranging rom strategy and organization
to operational eectiveness.
aBout schluMBErgEr
Schlumberger Limited (NYSE:SLB) is the worlds leading oil eld servicescompany supplying technology, inormation solutions, and integrated
project management that optimize reservoir perormance or customers
working in the oil and gas industry. Founded in 1926, the company today
employs more than 108,000 people, comprising over 140 nationalities, in
approximately 80 countries.
WEBsitEs
www.b.b.m
www.b.m
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Welcome
A World in Need of Transition
A century ago, the worlds population stood at
approximately 1.75 billion about a quarter
o what it is now. The gas turbine had just been
invented and global primary energy consump-tion was a raction o current levels. Energy
sources were limited, power-consuming
appliances were ew and ar between, and oil
and gas were not the dominant energy sources.
Fast orward to today, the world population
has surpassed the 7 billion milestone and
could touch 8 billion by 2035. Primary energy
consumption has grown roughly 23 times and
uture demand is set to increase substantially,
particularly in rapidly developing economies.
In spite o this rapid growth, about 1.3 billion
people still do not have access to electricity or
live in energy poverty. Overcoming this energy
gap will not only require an increase in supply
but will also necessitate a metamorphosis in
the global energy mix. And the need or an
energy transition that will decarbonize the
global economy is becoming more critical as
more evidence o the impact o greenhouseemissions on climate change comes to light.
The rate o transition is highly inuenced by
the price and aordability o the energy source.
Oil, although no longer cheap, will continue
to play a major role in transportation as more
tight oil resources are exploited. The abundance
o unconventional gas reservoirs dispersed
around the globe confrms the longevity o
natural gas. Furthermore, coal will requirecarbon capture and storage (CCS) technologies
to be cleaner and environmentally acceptable.
Efcient technologies needed or a move
toward a decarbonized economy and diversifed
energy mix are known, but making this unda-
mental transormation possible requires a more
mature debate on the economic trade-os. For
example, is it reasonable to subsidize oshore
wind at around $200 per ton o CO2 avoided
when we could avoid atmospheric CO2 emissions
with CCS at a much lower cost?
Instead o pitting one energy source against
another, we should ocus the debate on how to
navigate the energy transition in the mosteconomical and rational way. As Lord John
Browne o Madingley points out, energy
transition implies smart, long-term policies that
address all possible solutions and encompass all
stakeholders so that no resource goes to waste.
It is about making the right decisions, not solely
based on past experience and ideas, but through
a thorough comprehension o where we want to
go and how we can get there.
At Schlumberger Business Consulting, we
provide insights on the possibilities or energy
companies to capitalize on the energy transi-
tion while taking into consideration, among
other actors, the current state and uture
potential o the technologies driving this
change. This issue oEnergy Perspectives
touches on the evolution o low-carbon energy
technologies, the positioning o oil and gas
companies, and the sustainability o theindustrys resources through the transition.
The energy transition is well under way, but
capitalizing on it requires the capability and
exibility to navigate through increased uncer-
tainty due to market volatility, changing policies
and geopolitical agendas, and rapid technologi-
cal change. We believe that todays energy
companies have the balance sheet strength,
technical and project management know-how,and the long-term vision and courage to be the
drivers o this historic transition.
Regards,
Antoine Rostand
SBC, Global Managing Director
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2 SBC Energy Perspectives | Winter 2012
Leading the Energy Transition
An introduction tolow-carbon energy technologies, howR&D investment in power generation methods with renewables
and support of CO2 emission reductions will lead the way toward
a new era in the worlds energy system.
By Olivier Soupa and Amy Long
Energy Transition: Oil and Gas
in a Prime Position to CapitalizeAs the world seeksenergy securityand alternative energy
sources produced in more environmentally sustainable ways,
theoil and gas industry stands well preparedto unlock
supplies, reduce emissions, and monetize the transition.
By Antoine Rostand
For synopses of articles in this issue, see page 48.
Sustainably Managinga Strategic ResourceWateris critically important for the energy industry, especially
for oil and gas extraction. Water issues carry signifcant
business riskand must be integrated into the strategic
planning of energy companies.
By Muqsit Ashraf, Hermes Alvarez, and Rakesh Jaggi
4
18
24
thought pieces
executive summaries
Energy Perspectives
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ContentsWinter 2012
Waste Gas: a Crucial Component
of the Energy Poverty DilemmaRecapturing orreducing levelsof waste gas could help
bottom lines while proving to be a greatbeneft to energy-
poor countries.
By Renaud Brimont, Antoine Aris, and Peter von Campe
Preparing for OpportunityIn order for companies toideally positionthemselves for theenergy transition, optimal managementwith an integrated
approach toward technology and innovation will be essential
inovercoming R&D challenges.
By Vivek Chidambaram and Tamas Seregi
The Challengeof TransitionLord John Browne o Madingley
on the current energy transition
and the challenges ahead
By Antoine Rostand
12
EmergingMarketsAn interview withDr. Fatih Birol
of the International Energy Agency on
energy poverty and emerging markets
By Olivier Soupa and Amy Long
30
36
42
interviews
sbc.slb.com | SBC Energy Perspectives 3
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4 SBC Enery Perspectves | W 2012
his article is an extract rom SBC
Energy Institutes 2011 survey,
Leading the Energy Transition.
The ull report will be accessible on
SBCs website, sbc.slb.com, in January 2012.
R&D work is instrumental in ensuring
that critical low-carbon emitting technologies
reach commercialization. The Schlumberger
Business Consulting (SBC) Energy Institute,
a nonproft energy research oundation, seeks
to better understand the specifc challenges,
priorities, and practices o companies devel-
oping low-carbon energies (LCEs) like solar,
wind, biouels, carbon capture and storage
(CCS), geothermal, as well as smart grids, en-
ergy storage and energy efciency.
On the basis o analysis and interviews
with more than 70 experts and companies
rom all regions and various industries, the
survey Leading the Energy Transition com-
prises a high level annual status o RD&D
(research, development, and demonstration)
rom public and private sources in all LCE
technologies, alongside a detailed ocus on
specifc technologies. The 2011 survey has
assessed the maturity o LCE technologies,
unding requirements, role o public and pri-
vate actors, with a ocus on carbon capture
and storage and enhanced geothermal
systems (EGS), and sets orth suggestions or
increasing activity.
Lo-Carbon Enery Tecnoloes(LCETs) Are VtalThe worlds energy system is at the onset o a
new era. For over a century, hydrocarbons
coal, oil, and gas have underpinned modern
economic development and today account or
80% o global primary energy demand. Tensions
in this energy system are mounting. The threat
Leading the
Energy TransitionAn introduction tolow-carbon energy technologies
Olver Sopa
an Amy Lon
T
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c..cm | SBC Enery Perspectves 5
o climate change, concerns over energy securi-
ty, increasing competition over nite resources,
and widespread energy poverty highlight the ur-
gency o reaching a new, more sustainable ener-
gy system. According to the International Energy
Agencys (IEA) New Policies Scenario, which
takes into account recently announced commit-
ments and plans to reduce emissions, by 2035
ossil uels will still account or 75% o the worlds
primary energy (see gure 1, page 6) and related
CO2 emissions will increase by 26% compared to
2009 levels. All the growth is attributed to devel-
oping, non-OECD countries that rely heavily on
ossil uels to meet their energy needs.
In particular, avoiding climate change is in-
creasingly seen as an issue or which time is run-
ning out. The IEA recently warned that global
temperature is on course to rise by more than
3.5C in the New Policies Scenario,1 and the
Intergovernmental Panel on Climate Change
(IPCC) estimates that on the present course,
we could reach a tipping point by 2020 ater
which the eects o climate change would be-
come widespread and disruptive. Atmospheric
CO2 concentrations above 450 ppm could result
in global temperatures rising 2C above prein-
dustrial levels,2 in turn setting o a chain o
disruption in weather and water patterns that
would have devastating eects on ood produc-
tion, ecosystems, and coastal communities (see
gure 2, page 7). Disturbingly, both CO2 concen-
trations and global temperatures hit record
highs in 2010, and the past decade was the
warmest on record since the late 19th century,
when global temperature measurements began.
The energy transition rom hydrocarbon-
based economies to a more sustainable model
requires coordinating a set osolutions (indi-
vidual technologies) across severalindustries
(power, manuacturing, and transport) andillust
ration
by
Gordon
studer
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6 SBC Enery Perspectves | W 2012
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levels (international, national, company, house-
hold), via instruments that appeal to inter-
sections o the above (regulation, emission
restrictions, taxes, and incentives). Action on
three main levers, each comprising dozens o
LCETs and behavioral changes, is needed.
These levers are low-emissions energy genera-
tion, end-use, and decarbonization.
The IEA estimates that preventing the 2C
tipping point is possible i we start to reduce
our annual CO2 emissions beore the end o
the decade. As described in the IEAs 450 Sce-
nario, which minimizes costs to stabilize CO2
concentrations at 450 ppm and limits global
warming to 2C, the least-cost option requires
actions on all three ronts, with end-use e-
ciency and uel switching contributing 48%,
low-carbon energy generation 30%, and decar-
bonization 22% (see gure 3, page 7).
Yet Many LCETs Are NotCommercally ReayOne measure o commercial readiness or pow-
er generation technologies is how close they
come to achieving grid parity, or economic
competitiveness, with hydrocarbons the in-
cumbent source o energy. It should be noted
that without pricing in the negative externali-
ties o CO2 emissions, incumbent uels are not
playing on a level eld with LCETs. Addition-
ally, LCET costs are being compared with costs
or technologies that have experienced 100
years o testing and improvement. Neverthe-
less, the persistent gap between the levelized
cost o electricity3 (LCOE) o hydrocarbons
versus LCETs shows that, by and large, the
electricity generated rom the latter is simply
more expensive (see gure 4, page 8) that
is without accounting or the cost o building
new transmission inrastructure, which will be
required or large scale deployment o LCETs.
Until LCETs reach grid parity, they will be
dependent on public-sector subsidies and con-
sumers willingness to pay more or electricity.
Another key measure o LCET attractive-
ness is the cost o CO2 avoided or abatement
cost, which is a tool or governments rather
than or private investors. It measures the ad-
ditional cost required to avoid emitting one
ton o CO2 by using an LCET instead o an
FiguRE 1: ShARE OF wORLd PRiMARY ENERgY dEMANd BY ENERgY TYPE
n: Pjc i egy agcy C Pcy sc World Energy Outlook2011.
bgy c m, w, w.
SourceS: VaclaV Smil energy TranSiTionS (2010), BP STaTiSTical reView, iea weo 2010 and weo 2011;
SchlumBerger BuSineSS conSulTing (SBc) energy inSTiTuTe analySiS
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
New PoliciesScenario
2035
100%
60%
20%
80%
40%
0
Bioenergy
Other renewablesHydroNuclear
Gas
Oil
Coal
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c..cm | SBC Enery Perspectves 7
FiguRE 2: ATMOSPhERiC CO2 CONCENTRATiONS ANd POSSiBLE CONSEquENCES
SourceS: SchlumBerger BuSineSS conSulTing (SBc) energy inSTiTuTe; relaTion BeTween co2 concenTraTion
and TemPeraTure increaSe are from iPcc working grouP iii (2007); relaTion BeTween TemPeraTure increaSe
and PoSSiBle conSequenceS are from STern reView on economicS of climaTe change (2006).
+0C +1C +2C +3C +4C +5C
450 ppm
Food
Water
Ecosystem
Weather
Climate Change
Severe impactsin Sahel
Rising number of peopleat risk from hunger
Major declinesin crop yields
Mountain glaciersdisappear
Watershortage
Sea level risethreatens major cities
Coral reefdamaged Collapse ofAmazonian rainforest
Rising intensity of storms, forest fires,droughts, flooding and heatwaves
Melting ofGreenland ice sheet
Increasing risk of abrupt,large-scale shifts in climate system
parts per m on ppm
550
650
750
emission intensive technology. Coal is taken as
the reerence plant4 because is the most emit-
ting power generation technology. The cost o
CO2 avoided can be negative, implying that
the LCET is more cost eective than coal, even
without considering the emissions impact.
This is the case or hydropower and conven-
tional geothermal power.
Figure 5 (on page 9) illustrates the large
variations between LCETs abatement costs in
the United States. Apart rom hydro and geother-
mal, wind onshore, nuclear, and biomass appear
as the most aordable technologies to decrease
CO2 emissions. Interestingly, the cost o carbon
capture and storage (CCS) abatement is well be-
low other technologies that attract much more
attention, like wind oshore or solar, whose cost
o CO2 avoided can exceed $200 per ton.
The second insight rom gure 5 is that the
potential o low-carbon technologies to address
climate change diers substantially. As repre-
sented by the width o the bars in gure 5, we can
see that technologies like nuclear or CCS applied
to power generation could represent up to 22%
Source: iea weo 2011
FiguRE 3: CO2 EMiSSiONS REduCTiONS NEEdEd BY LCET AREA BY 2035
2010 2015 2020 2025 2030 2035
New Policies Scenario
450 Scenario
38
36
30
32
34
26
24
22
28
20
Gt
2020 2035
Efficiency 72% 44%
Renewables 17% 21%
Biofuels 2% 4%
Nuclear 5% 9%
CCS 3% 22%Total (Gt CO2) 2.5 14.8
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8 SBC Enery Perspectves | W 2012
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and 37% o CO2 abatement in 2050 respectively,
according to the IEAs 450 Scenario (the least
costly pathway to a 2C increase).
Abatement costs are not xed in time, and
the role o R&D is to make it decrease. There-
ore it is important to understand where invest-
ments are currently directed to identiy gaps
between the potential o LCETs in terms o CO2
abatement and the level o RD&D investments.
investment Levels May
Forecast LCET ProressFor most LCETs, reaching grid parity is a mat-ter o more projects and/or more R&D. The
experience o many industries, such as ship-
building and semiconductors, has shown that
unit costs all with capacity installed. This is
because over time, and with successive proj-
ects, companies make incremental reductions
in the cost structure through operational
improvements (learning by doing), and can
take advantage o supply chain economies o
scale. For other LCETs, more R&D is needed
or breakthrough technologies that can change
the cost structure itsel.
In either situation, the level o investment
may serve as a orecast o relative rates o prog-
ress between LCETs. In 2010, new investments
in LCETs or energy generation (renewables
and CCS)5 totaled $219 billion, an increase o
32% rom 2009 (see gure 6, page 10). This
refects the strength o investment rom devel-
oping countries, the boom in household solar
PV installations in Europe, and the rebound
rom the 2008 recession. Despite this histori-
cally high number, investment alls short o the
$750 billion per year through 20306 that the IEA
estimates is needed to achieve the 450 Scenar-
io. O the total investment, the IEA estimates
that $1428 billion a year is needed or RD&D
in renewables and CCS.7 In contrast, SBC En-
ergy Institute estimates indicate that RD&D
levels in 2010 or these technologies totaled
approximately $10 billion, refecting a sizable
Coal
Nucle
arGa
s
Coal(C
CS)
Gas(CC
S)
LargeH
ydro
Geothe
rmal
Solid
Biom
ass
OnshoreW
ind
Offsh
oreW
ind
Small
Hydro
Wave
Solar
Thermal(STE)
Solar
PV
1000
600
200
800
400
0
The goal:grid parity
Current LCET positions(global average)
LCOE (USD per MWh)
n: s PV c hv mcy cm w v h p w y c h iea vy w cc,
wh ste c hv gy y h m. th c h h h PV w g pc ste h mk. a, c PV mch m cy h u.s., kg g v-g kw PV lCoe pw. ly, h ste h iea vy w m h p, whchmy y c h hgh c ste m c. th m m 10% c .
Source: SBc energy inSTiTuTe creaTed gloBal aVerageS uSing The ieaS ProjecTed coST of generaTing
elecTriciTy (2010)
FiguRE 4: AVERAgE gLOBAL LCOE ESTiMATES FOR VARiOuS SOuRCESOF ELECTRiCiTY
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c..cm | SBC Enery Perspectves 9
RD&D gap. Although historically corporate
RD&D investment levels have been higher than
that o the public sector, this trend reversed in
2010, refecting the impact o the recession and
stimulus spending.
Historically, the wind sector has attracted
the highest investment among energy genera-
tion LCETs. However, the rapid growth in
small-capacity distributed solar projects has
been remarkable (up 93% in 2010 over 2009),
to the extent that the solar sector now attracts
almost as much investment as the wind sector.
Investments in biomass and biouels have all-
en with oil prices.
In terms o R&D investment, solar is the
clear winner among energy generating LCETs.
The proportions o R&D spend to project invest-
ment and between private and public sector
RD&D spending varies dramatically by technol-
ogy and are due to industry-specic drivers. For
example, governments are investing heavily
in biouels, driven by energy security concerns
and high oil prices. In contrast, the private
sector is investing heavily in solar R&D, be-
cause the market is booming, solar is tantaliz-
ingly close to reaching grid parity, and urther
improvements needed are manuacturing and
process optimization in nature, which bears
relatively low technology risk. As a proportion
o total R&D investment, most solar and CCS
R&D investments are made by the private sec-
tor. In contrast, geothermal and biouels R&D
are largely sponsored by the public sector (see
gure 7, page 10).
It should be noted that in addition to direct
unding o R&D activity, the public sector also
supports renewables via public support mecha-
nisms such as renewable portolio mandates,
eed-in taris, tax incentives, and so on. The
IEA estimates that worldwide public support
mechanisms or renewables which excludes
CCS were worth approximately $57 billion in
2009, but need to be increased to $205 billion
through 2035.8 Consistent breakdowns or the
level o public support mechanisms and gap or
each technology were not available but appear
to be highest or the bioenergy sector. Due in
part to this uneven level o investment in proj-
ects and R&D, some LCETs are racing ahead
o the 450 Scenario in terms o growth rates and
installed capacity, others are alling behind (see
gure 8, page 11).
FiguRE 5: CO2 ABATEMENT CuRVE FOR POwER gENERATiON LCETS
n: C Co2 v CCs (g) v -f pw p. o fg m iea PjcC eccy (2010) h vy xc; gv m c y $23 p c.
SourceS: SchlumBerger BuSineSS conSulTing (SBc) energy inSTiTuTe. The coSTS of co2 aVoided are for Tech-
nologieS oPeraTing in The uniTed STaTeS wiTh currenT aVailaBle TechnologieS and deriVe from 21 STudieS
gaThered By The gloBal ccS inSTiTuTe in The coSTS of ccS and oTher low-carBon TechnologieS, iSSueS Brief,
no. 2 (2011); ccS co2 reducTion PoTenTial comeS from iea energy Technology PerSPecTiVeS (2010)
4%
18
49
9
53
100%
92106
67
90
139
176
203
239
182
WindOnshore
CCS(coal)
CCS(gas)WindOnshore
SolarPV
SolarCSPGeoth.
Nuclear BiomassHydro
-8 -7-27
-37
22%800
2%
2%
33%4%
5%
8%
11%
9%
250
100
0
200
150
50
Range of cost of CO2 avoided relative to coal (coal = 0)Share of emissionsreduction potential (%)
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10 SBC Enery Perspectves | W 2012
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2006 2007 2008 2009 2010
91
132
164 163
219
96
30
60
12883
03
74
28
31
128
44
02
64
37
21
19
12
6
02
2
52
24
13
13
20
2
20
5
12
30
9
11
21
1
21
4
MarineGeothermalSmall HydroCCSBiofuelsBiomassBiomass
Solar small distributed capacity
Solar (excl. small capacity)
Wind
CAGR+2
4%
SourceS: Bnef daTaBaSe; SchlumBerger BuSineSS conSulTing (SBc) energy inSTiTuTe analySiS
FiguRE 6: hiSTORY OF TOTAL NEw iNVESTMENTS iN LCETS FOR ENERgYgENERATiON, BY LCETS
SourceS: figureS for renewaBleS were Taken from uneP gloBal Trend in renewaBle energy inVeSTmenT
(2011); for ccS daTa, eSTimaTeS are By SchlumBerger BuSineSS conSulTing (SBc) energy inSTiTuTe BaSed ondaTa from Bnef, iea, and commiSSion of The euroPean communiTieS (2009)
FiguRE 7: TOTAL NEw iNVESTMENTS ANd R&d iNVESTMENT iN ENERgYgENERATiON LCETS iN 2010 (uSd BiLLiONS)
Wind
Solar
Biomass
Biofuels
CCS
Small Hydro
Geothermal
Marine Marine
Asset Finance
PV Small Distributed Capacity
R&D
Corporate R&D
Government R&D
Corporate R&D
Government R&D
Total new investments in 2010 R&D investments in 2010
1.50
Solar 3.61.52.1
96
1.3
95
Biofuels2
2.3
0.3
6090
3.6
26
CCS
0.54
1.54
1
12
11
Wind0.8
1.3
0.5
2.3
8
6
Biomass0.3
0.6
0.3
8
Geothermal0.4
0.43
0.03
3 Small Hydro0.1
0.13
0.03
2.4
0.010.1
.6
1.5
7
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c..cm | SBC Enery Perspectves 11
ConclsonUltimately, the exact mix o LCETs, not to men-
tion the extent o climate change avoided,
will be a question or historians. With the con-
tinuing economic ragility, many uncertainties
continue to make the road towards emission
reduction a long and dicult journey. All actors
contribute in positive and negative ways. Most
governments have adopted inconsistent energy
policies, ghting climate change in one bill and
supporting CO2-intensive industries in the next.
For a variety o motivations, companies have be-
gun to change their approach to energy con-
sumption, but others also lobby against more
stringent environmental regulation. Public opin-
ion also plays an ambiguous role towards carbon
emissions reduction by encouraging the use o
certain renewables such as solar and wind, but
also preventing instrumental initiatives like on-
shore CCS in continental Europe. LCETs are
moving orward, some at a reasonable pace, but
others are clearly lagging behind.
All analyses are available in the SBC Ener-
gy Institutes reportLeading the Energy Tran-
sition (2011).
Olver Sopa Amy Lon wk schmg
b Cg (c..cm). W wcm y
cmm h c: [email protected]
Cpygh 2012 schmg b Cg. a gh v.
1. i egy agcy, New Policies Scenario
World Energy Outlook(2011).
2. iPCC Fh am rp: Cm Chg 2007.
3. th vz c ccy m h
cpx, vm, px, q g
ccy v h m pw p, xp v-
g g (MWh KWh) ccy.
4. t. Jm Jh Kh, lg Cv egy
tchgy: Cc am (2007). th h
h h PV y h xpc g cv
h h w, wh h v p
h w y.
5. thgh h p, lCet gy g c
w (w, , m , m hy,
ghm, c) CCs.
6. iea, egy tchgy Ppcv (2010).
7. iea, G Gp C egy rd&d (2010).8. iea, W egy ok (2010).
FiguRE 8: TOTAL NEw iNVESTMENTS iN ENERgY gENERATiON LCETS iN 2010
Current growth rate
(5 year average)*
Required growth ratein the 450 scenario
Current status (GW)
Blue Map target 2020 (GW)
Current status (GW)
Blue Map target 2020 (GW)
Gap in annual growth rate required%
Gap in capacity installed by 2010GW installed
1219980
512430
575195
8254
12621
CCSPower 3 GW per year required
Hydro 2%5%
Nuclear4%3%
Wind12%
27%
Biomasspower 4%
7%
SolarPV 19%
60%
Geothermalpower 7%4%
CSP 8%50%
2111
421
280
n: th c w h vg gwh m 2005 2010. F PV, m, ghm, CsP h p 20042009. th c c ccpcy cc p 2015.
Source: iea inPuT To The clean energy miniSTerial (2011)
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12 SBC Enery Perspecves | Winter 2012
Though change is constant, especially in the energy industry, transitions are slow. The energy
transition will play out over the next decades rather than the next couple o years and requires
leaders who are capable o combining a long-term vision o the energy uture, with a rm grasp
o the complexities and realities o execution. In this sense, ormer CEO o BP, Lord Browne o
Madingley, has been a prototype leader in the energy industry. With his role in transorming BP
and putting it on the renewables map, he was not only anticipating the changing landscape o the
energy system in the 21st century, but actively driving that change. In his current role as Partner
and Managing Director o Riverstone Holdings LLC, an energy and power ocused private equity
rm, Lord Browne continues to push or a more mature debate on the energy transition, which
aims to put all energy options on a level playing eld. At the Riverstone oces in London, SBC
Global Managing Director Antoine Rostand recently discussed the current challenges that the
energy sector aces, and how stakeholders can be more successul in navigating this change.
The Challengeof TransitionLord John Browne of Madingleyon the current energy transition
and the challenges and targets ahead
By Anone Rosand
Energy Perspectives:Lets start with your views
on the current energy transition including
climate change and the need to decarbonize the
energy mix. What can energy companies do?
Lord Browne of Madingley:The rst thing to
remember is that there is no such thing as a
risk-ree source o energy. Sometimes people
argue that one source o energy is better than
another because its less risky, weve done it
beore, or it appears to be cheaper. All these
ways o thinking need to be thrown up in the
air and people need to start again.
Ive recently been asked a lot about subsidies
or renewable energy. I remind people to think
about the real cost o a liter o gasoline and the
price. The price is roughly three times the cost,
and the dierence goes to the government in tax.
A tax is just a negative subsidy, but no one really
To see video of our interview with Lord John Browne of Madingley,visit our website: www.sbc.slb.com
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16 SBC Enery Perspecves | Winter 2012
inervew w
lord Browne
understand why Germans believe its the right
decision. There are lots o things that we need
to do to keep the political process moving
orward. The biggest issue to be tackled is
whether or not we do something to reduce
the probability o climate change. That is an
open question at the moment.
EP:In a recent SBC study we ound that oil
and gas companies had invested more in
specifc renewable energies, or example
Exxon in algae and Total in solar. They are
investing a signifcant amount o money in
these orms o energy, because they want to
position themselves more as energy compa-
nies. Is there a market and are there opportu-
nities or entrepreneurs or private equity to
participate in a new Internet boom around
clean energy and decarbonization?
LBM:There is always an ecosystem around
any part o this gigantic industry called
energy the biggest industry in the world.
Whether its shale gas, where most o the
action took place on the entrepreneurial
level, to be rolled up into larger companies
later, or whether it is tertiary recovery in oil
elds, which rolls down to the entrepreneurial
company rom the major, everyone has a role.
Everyone gets better by allowing multiple
players. There are lots o entrepreneurs doing
algae; there is also Exxon. There are plenty o
big companies doing wind, which you need big
balance sheets or, but there are also small
companies, private equity companies, and
single entrepreneurs. There are people doing
electric cars, all part o the same thing, rom
the scale o Great Wall Motors and GM
through to Fisker and Tesla. I think that is
the sign o a healthy industry. I it were in the
hands o just big companies, it could get very
plodding; i it were in the hands o just small
companies, it could probably never deliver. In
the end you need strength, muscle, and big
balance sheets to deliver, but you need many
small players to create.
EP:From your past experience as CEO o BP,
what would be your advice to an executive
o a large player today?
LBM:To always remember that the energy
industry is not static and to understand too
that to give up or release yoursel rom your
heritage is a really dicult thing to do. In oil and
gas and in energy we deal with inrastructure-
like projects that are very deeply rooted and
require high up-ront capital, so legacy what
happened in the past anchors the uture. You
cant throw away everything every year and start
again. But you really need to look on the margin
and ask, Is that really what I need to be doing?
Should I, or example, be thinking where real
integration is? In the past in the OECD, we
used to integrate upstream with rening and
marketing. But when I joined the industry there
was a very big surplus o crude oil and it was in
the hands o the majors, and the only dierentia-
tion was how you sold it as a rened product in a
growing market. This has all changed now in the
OECD, so people have to move somewhere else
and think about what they are doing on the
integration in the OECD.
Equally, changes in the electric power
business, notably with gas and renewables,
mean that those who control gas and renew-
ables need to think careully about what goes
on beyond their gate and how they change
their attitude whether it is getting into the
business or changing the way they contract,
a lot o changes are taking place. Gas in parti-
cular, which weve now identied as more
ubiquitous than we ever thought: its every-
where, be it in the eastern Mediterranean or
shale gas in Europe, North America, or China.
That changes the way the energy business has
to think in the uture contracts, utilization,
electric power, all sorts o things.
EP:We talked about the legacy o oil and gas
companies. Besides that and we all know
that the weight o the investment means that
you cannot change that overnight what else
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..m | SBC Eerg Perspectives 19
he energy industry is at a critical
juncture, at a tipping point where
tough decisions will need to be made.
By 2035, global primary energy de-
mand is projected to increase by more than
40% rom current levels. This step-change in
demand will be driven largely (more than
90% o the growth) by rapidly industrializing
non-OECD countries with booming economic
development.
At the same time, there is a strong need to
mitigate the environmental impacts that will
result rom this unprecedented rise in energy
demand. By 2035, energy-related CO2 emis-
sions are projected to rise by more than 20%
rom current levels, and although OECD emis-
sions will drop rom current levels, the rise in
non-OECD emissions will more than oset
OECD declines. The key challenge or the en-
ergy industry in the 21st century i not or
the world will be to overcome this nexus
between energy security and environmental
sustainability, and transition the energy sys-
tem in the most optimal way.
Eerg Trasitis Take TimeThere are no silver bullet solutions to the
worlds energy challenges. While lots o studies
prove that quick mass-adoption o large-scale,
carbon-ree energy technologies is possible,
they all ignore one historical inconvenient truth
energy transitions take a long time to play
out. An energy transition is defned as the
length o time that elapses between the intro-illust
rationbyWalterVasconcelos
Energy Transition: Oiland Gas in a Prime
Position to CapitalizeAs the world seeksenergy securityand alternative energy sources
produced in more environmentally sustainable ways, theoil and gas
industry stands well preparedto unlock supplies, reduce emissions,
and monetize the transition.
B Atie Rsta
T
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20 SBC Eerg Perspectives | Wn 2012
Eerg
Trasiti
duction o a new primary energy source or tech-
nology and its rise to attaining signifcant mar-
ket share (typically 2030%). The history o
liquefed natural gas technology highlights the
reality o energy transitions. It took roughly
60 years between the scientifc discovery o liq-
ueaction to the frst LNG shipping patent, an-
other 50 years to the frst commercial delivery
o LNG, and then another 50 years or LNG
to account or roughly 30% o all natural gas
traded globally (see fgure 1, below).
As another example, it took oil roughly 60
years, rom the frst commercial production in
the late 1800s, to capture a 10% global market
share, and then another 20 years to reach a
30% market share. Similar time spans are seen
historically or the maturation o other prima-
ry energy sources. Currently, there is a lot o
hope pinned on alternative energy sources to
come to the rescue in the next 10 to 20 years,
yet none o these alternatives has yet to reach
a 5% global market share. History points to at
least another hal-century beore these alter-
natives even begin to have a material impact
on the global energy system (see fgure 2, op-
posite page) and that assumes the technol-
ogy lives up to its potential.
In the 1970s, promoters o nuclear energy
promised that the United States would gen-
erate 100% o its electricity rom nuclear is-
sion by the year 2000, orever banishing coal
plants. By the year 2000, however, coal was
still generating 50% o all power, while nu-
clear power had yet to crack 20%. Its impor-
tant to be realistic about the time it takes
or new energy technologies to reach critical
mass, especially during unprecedented lev-
els o global energy demand growth. Just as
dangerous as doing nothing at all about the
energy systems looming challenges is bank-
ing on unrealistic expectations.
Trasitiig i the MstEcmical a Ratial WaThe right path to a low-carbon energy uture
involves shiting the energy mix in the most
practical way. The challenge lies in reducing
emissions in an economically attractive, low-
FIGURE 1: HISToRy oF TRAnSITIon To LnG TECHnoLoGy
SourceS: VaclaV Smil energy TranSiTionS (2010); Schlumberger buSineSS conSulTing (Sbc)
1850 1900 1950 2000 2050
43 years 44 years 46 years
Breakthroughin gas
liquefaction
Laboratory scaleliquefaction of gas
Methane Pioneer(first trial LNG delivery)
Modern LNG carrier
Airliquefaction
patent
First trialLNG
delivery
Firstcommercial
LNG deliveries
First LNGshippingpatent
LNG accountsfor ~30% of
natural gas trade
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..m | SBC Eerg Perspectives 21
risk, and technically easible manner. One way
to achieve this is to decarbonize the power
generation sector by switching rom coal to gas.
Gas will be vital because it
has relatively low CO2 emis-
sions, is abundant, requires
low investments, and is a re-
liable and proven technolo-
gy. The uel is gaining a lot
o momentum or decarbon-
ization in places such as
Europe, a region with ambi-
tious emissions reduction
targets.
For example, a recent
study presented to the EU
Commission highlights the
beneits o transitioning
the European energy sys-
tem by using more natural
gas.1 The study outlines a renewable energy
build-out period rom 20102030 that is
complemented by natural gas. The build-out
would progressively replace coal-ired ca-
pacity and help Europe achieve its ambi-
tious 2050 target an 80% greenhouse gas
emission reduction.
The approach reduces implementation risk
by reducing dependence on
technological developments
rom emerging technologies
and by placing more reliance
on gas inrastructure that
is already in place. The ben-
efts o transitioning the Eu-
ropean energy system in this
way are ar-reaching lead-
ing to signifcantly lower in-
vestments, less risk, and a
reliable and secure energy
system (see fgure 3, page
22). A similar approach has
to be taken on a global scale,
especially in high-impact
countries such as China.
Plic Acti Likel t Alterthe Eerg LascapeA practical and sustainable path to a low-
carbon energy uture is needed and despite
FIGURE 2: SHARE oF GLoBAL PRIMARy EnERGy dEMAnd By FUEL TyPE
1940 20101900 1910
*Biofuels includes waste and wood
1920 1930 1990 20001950 1960 1970 1980
60%
50%
30%
10%
40%
20%
0
Oil
Coal
Gas
Biofuels*
NuclearHydroOther Renewables
Energy transition critical mass
SourceS: VaclaV Smil energy TranSiTionS (2010); bP STaTiSTical reView; iea; Schlumberger buSineSS conSulTing
The right path to a
low-carbon energyfuture involves shifting
the energy mix in the
most practical way.
The challenge lies in
reducing emissions
in an economically
attractive, low-risk,
and technically fea-
sible manner.
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22 SBC Eerg Perspectives | Wn 2012
Eerg
Trasiti
current uncertainties, positive signs are emerg-
ing. The outcome o the United Nations land-
mark Copenhagen climate conerence in 2009,
in which several countries recognized the need
to limit global temperatures to no more than
2C above preindustrial levels, is a step in the
right direction. The 2010 UN climate coner-
ence in Cancun urther afrmed the worlds
commitment to the cause by recognizing that
current emissions pledges need to rise. In addi-
tion, a und was created to help developing
countries adopt low-carbon technologies. These
events hint to a uture where new policies will
undamentally change the way oil and gas com-
panies operate.
Fossil uels, even under the most ambi-
tious IEA decarbonization scenarios, will
still capture the majority o global primary
energy demand by 2035 (ranging rom more
than a 60% share under aggressive emissions
reductions targets to as high as an 80% share
i no change in government policies takes
place). By 2035, the share o global primary
energy demand taken up by renewable en-
ergy, excluding hydropower, could range
rom around 3% to as high as 7%, depending
on the policies enacted. All sources o
primary energy ossil uels, nuclear, bio-
uels, and renewables will rise signii-
cantly in absolute terms to meet the worlds
growing hunger or energy, but the energy
mix will shit. Oil and coal will lose share,
while natural gas, nuclear, biouels, and
renewables will pick up share. These chang-
es will engender opportunities or oil and
gas companies.
oil a Gas Iustri Prime PsitiWhen it comes to the energy transition, the
oil and gas industry is in a great position to
capitalize. Transitioning the global energy
system in the most optimal way will not only
involve the expansion o all economic supply
sources (e.g., ossil uels and renewables),
but also require the development o new
technologies that unlock new sources o sup-
ply and mitigate environmental impacts.
Employ all economic
sources of supply
The world will need to expand all economic
sources o supply just to keep up with the
step-change in energy demand growth. This
opens up attractive opportunities or oil and
gas companies in areas such as unconven-
Source: euroPean gaS adVocacy orum
FIGURE 3: BEnEFITS oF TRAnSITIonInG THE EU EnERGy MIx By USInG MoRE GAS
Lower CostsLower risks and easier
impLementation
robust, reLiabLe, and
seCure energy system
up t 450550 ssvstt ss
s t tss t- kts
St s spp tt svs, spsstt, s spps
150250 stp s
as tss s ccS t t pt
rst p sst t
t x t ttttts
510% s pfts v tsv sts
lss ssv v s p q
l t tp- t q-ts ss-tt
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..m | SBC Eerg Perspectives 23
tional oil and gas, the deepwater, and even
biouels and renewable energies as econom-
ics improve. This is especially relevant or
decarbonization o the power sector, where
natural gas is emerging as an abundant and
low-carbon supply source. Also, the rise o
abundant unconventional gas helps bolster
the case or decarbonization by switching
rom coal to gas.
Develop new technologies to unlock
supply and reduce emissions
New technologies will be needed to unlock
supply and mitigate environmental impacts.
Renewable energy and de-
carbonization technologies
such as carbon capture and
storage (CCS) will be criti-
cal, although most are
currently in the capital-
intensive R&D stage. Oil and
gas companies, unlike most
venture capital frms and
utilities, have the balance-
sheet strength, patience,
and project management
savvy needed to drive these
large, long-timeline technol-
ogy projects.
We are already seeing the industry taking
action. For example, ExxonMobil recently
invested $600 million to develop next-gener-
ation algae-based biouels with biotech-
nology company Synthetic Genomics. Then
theres the Chevron-led Gorgon gas project
in Australia, which will capture roughly 40%
o the projects CO2 emissions and store it
2.5 kilometers below ground. The $2 billion
CCS project will be equivalent to taking two-
thirds o Australian vehicles o the road.
Companies such as these that take the ini-
tiative now to identiy uture opportunities
and learn the technology will gain signifcant
frst-mover advantages as the energy transi-
tion plays out.
A new Lascape: frm IoC t IECThe worlds energy system will experience
signifcant change over the coming decades.
A step-change in energy demand growth,
coupled with policy action that encourages
low-carbon energy, will dramatically change
the energy landscape. Battle lines will be
redrawn and there may be a convergence
o several industries oil and gas, power,
mining, conglomerates, venture capital
jostling to take a piece o the energy transi-
tion pie.
The good news or oil and gas companies
is that ossil uels will remain relevant
or decades to come. Fur-
thermore, oil and gas com-
panies have the capital,
project management exper-
tise, and R&D capabilities
needed to capture a signif-
cant portion o the uture
growth in renewable energy
and low-carbon technology.
Just a decade ago it would
have been inconceivable or
an oil company to make a
major investment in a true
renewable energy such as so-
lar power. I Totals recent
$1.4 billion investment in SunPower Corpora-
tion, one o the largest investments ever made
by an oil company in renewable energy, is any
indication, then oil and gas companies are des-
tined to become an even bigger component o
the worlds energy system as they themselves
transition rom IOCs to IECs or international
energy companies.
Atie Rsta wk f shumg bun
cnung (..m). W wm yu mmn
n h : [email protected].
cpygh 2012 shumg bun cnung. a gh vd.
1. eupn G advy Fum, opmzd Phwy
rh 2050 amn tg wh lw c nd impvdFy (F. 2011).
The world will need to
expand all economic
sources of supply just
to keep up with the
step-change in energy
demand growth. This
opens up attractive
opportunities for oiland gas companies.
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24 SBC Eergy Perspecties | Wte 2012
ater is critical to the oil and
gas industry. First, several
important emerging supply
sources such as oil sands con-
sume large amounts o water. Second, water
is a large by-product, and some experts argue
that the oil industry is eectively a water in-
dustry that delivers oil as a secondary output.
For example, in North America, nearly eight
barrels o water are produced or every barrel
o oil. Global produced water volumes high-
light the importance o water, especially in
the U.S. (see gure 1a, page 26). The industry
is currently experiencing a shit to more water-
intensive supply sources, which will come at a
signicant cost. For example, North American
water expenditures are projected to increase
60% this decade (see gure 1b, page 27).
The Growig Importace of WaterGlobal population growth and economic expan-
sion will not only create tremendous upward
momentum or energy demand, but also drive
signicant increases in the need or water. Fur-
ther compounding this challenge is the interde-
pendency and requent competition between
water and energy large amounts o water are
consumed to generate energy, and a vast amount
o energy is consumed to extract, process, and
deliver clean water. As a result, an intense com-
petition or water, both rom the agricultural and
industrial sectors, is expected to ampliy an al-
ready growing problem: global water scarcity.
These water issues pose a signicant business
risk to oil and gas companies seeking to achieve
sustainable supply growth.
The ollowing are some o the major chal-
lenges aced by the industry: (1) mature oilelds
increasingly require water-based EOR methods
and produce signicantly more water over time;
(2) increasing E&P complexity rom emerging
supply sources such as unconventional gas is
driving up water usage; (3) and greater environ-
mental and regulatory pressures related to wa-
Sustainably Managinga Strategic ResourceWateris critically important or the energy industry, especially or oil and
gas extraction. Water issues carry signifcant business riskand must
be integrated into the strategic planning o energy companies.
By Muqsit Ashraf,
Hermes Aarez,
a Rakesh Jaggi
W
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c.l.cm | SBC Eergy Perspecties 25
ter management and water scarcity will create
hurdles or operators (see gure 2, page 28). Oil
and gas companies must view water as a strate-
gic component o their value chain. Water is no
longer just an environmental issue; it will in-
creasingly be levered to production growth and
generate material incremental costs. As a result,
water necessitates a strategic approach that el-
evates its status as a critical component to cor-
porate viability in the oil and gas industry.
Water Chaeges Facigthe Eergy IustryAs global competition or water intensies and
environmental scrutiny grows, so will the stra-
tegic implications o water on the oil and gas
business. The ollowing are examples o water
challenges acing the industry:
Oil sands
Much progress has been made since the 1973
1974 oil crisis to mitigate the impacts o sup-
ply disruptions. Yet, events like Hurricane Ka-
trina in 2005 and geopolitical unrest in Libya
in 2011 highlight just how susceptible the
market still is to supply shut-ins. Oil sands
resources, primarily ound in Canada, will
play a critical role in bolstering supply secu-
rity. However, oil sands extraction methods,
both or mining and in-situ, require large
amounts o water and ace high regulatory
scrutiny due to environmental concerns over
produced water. (For mining extraction, 12 bar-
rels o water are required to recover one barrel
o bitumen versus three barrels o water or in-
situ extraction.)
Unconventional gas
The unlocking o large unconventional gas
resources in the United States is oten de-
scribed as a game-changing event. From 2005
to 2010, the U.S. went rom expecting a gas
shortage and the need or ambitious LNG
import capacity expansion to the discovery oillust
ration
by
jon
krause
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28 SBC Eergy Perspecties | Wte 2012
Sustaiaby Maagig
a Strategic Resource
(e.g., solvent assisted production, once-through
cooling towers or upgraders). Water reuse in-
volves the reinjection o produced water and
the injection o water or uture use through
aquier storage and recovery. For oil sands, re-
use involves technologies that improve recy-
cling in in-situ extraction (e.g., evaporators,
drum boilers) and technologies that improve
recycling in mining operations (e.g., injecting
CO2 into tailing ponds to accelerate separa-
tion). Water treatment technologies are a key
enabler o water reuse.
Lastly, the disposal o produced water is
relevant when reuse is not a viable option.
The water usually requires treatment beore
it is discharged and the discharge method
depends on the situation: oshore produced
water is discharged into the ocean in compli-
ance with regulatory standards; onshore and
coastal produced water is typically prohibited
rom being discharged and is either evapo-
rated or injected underground; and produced
water rom coal bed methane operations can
be discharged to surace waters under regu-
latory limits.
Environmental sustainability
In general terms environmental sustainabili-
ty involves carrying out a comprehensive en-
vironmental risk assessment that determines
i operations can have any impact on existing
water users or the environment. It also in-
volves establishing a monitoring and report-
ing system that ensures sustainability. For
unconventional gas, environmental sustain-
ability requires the use o advanced technolo-
gies such as sel-healing cement to ensure
the integrity o the well and the use o eco-
riendly racturing chemicals to reduce the
risks o an accidental release.
FIGURE 2: GlOBAl WATER SCARCITY And ExAMPlES OFOIl & GAS WATER ISSUES
Oil sands extraction
methods require large
amounts of water.
Regulators are mandating
optimal sourcing and
disposal methods
Mature production in the
water scarce Middle East
increasingly requireswater-based EOR methods
and produces more water
volumes over time
Coal bed methane
holds big promise for
Australia, yet issueswith handling of
produced water have
to be addressed
Unconventional gas resources
in gas-hungry China and India
show big potential, yet both
countries experience signicant
degrees of water scarcity
Shale gas success in promising
Eastern European countries like
Poland will depend on whether
operators can successfully source
water in densely populated areas
Shale oil exploration
in France was initiallyput on hold by
regulators due to
concerns over water
contamination
Shale gas basins like
the Haynesville
require increased
water volumes for
fracking operations
Little or no scarcity
Physical scarcityApproaching physical scarcity
Economic scarcity
Not estimated
SourceS: World reSourceS InStItute; SchlumberGer buSIneSS conSultInG (Sbc) analySIS
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c.l.cm | SBC Eergy Perspecties 29
Business planning
Integrating water issues into the business plan-
ning process is becoming vital or the oil and gas
industry. It should begin with measuring the
companys water ootprint along the entire val-
ue chain. Water issues will need to be integrated
into the governance structure, with appropriate
roles and responsibilities and close unctional
collaboration. For example, operations person-
nel may have the primary responsibility or pro-
duced water management, but will have to work
with the commercial group to understand the
economic implications o various strategies.
The business will also have to assess the
physical, regulatory, and reputational risks as-
sociated with the water ootprint and, conse-
quently, engage the key stakeholders (e.g., local
communities, non-governmental organizations,
government bodies, suppliers, and employees)
as part o the water risk assessment, long-term
planning, and implementation activities. Finally,
companies will have to become more proactive
in disclosing and communicating water peror-
mance and associated risks. Best-in-class com-
panies will establish an integrated system that
ties together all the elements o a sustainable
water strategy (e.g., sourcing, produced water
management, environment, and planning).
Sustaiaby Maagig a ResourceAddressing the water challenge will be a stra-
tegic imperative or the oil and gas industry.
Water issues are on par with the other major
challenges acing the industry, including
carbon emissions, the big crew change, lim-
ited resource access, geopolitical instability,
and increasing technological complexity.
Collaboration between industry stakeholders
(e.g., operators, service companies, regula-
tors) will be critical to connecting the dots
and sustainably addressing the implications
o a changing E&P landscape. Water is a limited
and critical resource that will infuence the
way oil and gas companies do business.
Muqsit Ashraf d Hermes Aarez wk f
schlumege bue Cultg (c.l.cm),
d Rakesh Jaggi wk f schlumege (l
.cm/wte). We welcme yu cmmet th
tcle t: [email protected].
Cpyght 2011 schlumege bue Cultg. all ght eeved.
1. Gll Wte itellgece, Pduced Wte Mket:
opptute the ol, shle, d G sect nth
amec (2011).
2. j. M, et l., Wte sccty & Clmte Chge:
Gwg rk f buee & ivet (Fe. 2009).
3. b. blck, et l., Mgg Pecu reuce,Oilfeld Review(summe 2008).
FIGURE 3: SUSTAInABlE APPROACH TO WATER MAnAGEMEnTIn THE OIl And GAS IndUSTRY
Source: SchlumberGer buSIneSS conSultInG (Sbc) analySIS
WaterChallenge
OptimalSourcing
Produced Water Management EnvironmentalSustainability
BusinessPlanning
Reduction Reuse Disposal
Oil Sands
UnconventionalGas
Mature
Production
Si ii w g Si is f i v w g
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30 SBC Eney Pespecves | Winter 2012
With the fallout from Fukushima, the rapid developments o unconventional oil and gas
resources, oil prices still above $100 a barrel despite the recent global economic slowdown,
limited progress on the renewable energies ront, and the perseverance o energy poverty or
over 20% o the global population, the inuence and guidance o the International Energy
Agency (IEA) has become more important than ever. Navigating the energy transition not only
requires a global perspective o the energy sector, but also a skilled and strong hand to inuence
global policies that will oster long-term commitment and investments. Dr. Fatih Birol, Chie
Economist o the IEA, recently spoke with Olivier Soupa and Amy Long o SBC at the IEA Head-
quarters in Paris regarding the state o the energy sector, especially in emerging markets, the
global implications o current policies, and the ways to move orward in the energy transition.
Emerging
MarketsAn interview withDr. Fatih Birolof the International Energy Agency
By Olve Soupa
and Amy Lon
Energy Perspectives:In the World Energy
Outlook 2010 (WEO 2010), you made waves
by declaring that conventional oil supplies
will peak in 2020. Has any new evidence
emerged to change this assessment?
Dr. Fatih Birol:We ollow the oil markets closely,
we look at the supply side, we look at the de-
mand side, we look at what will happen with
technology, and what will happen with govern-
ment policies. The global oil peak, i there is
one, will be a unction o dierent actors
prices, policies, technologies, and so on.
Ater [this years] WEO, regarding peak oil
or the decline issue, I can give you two major
messages. The frst message is i our price
assumptions are correct or the next 1015
years, which are a little higher than $100 (per
barrel) in real terms, then conventional crude
oil peaked around 2008 and more and more
unconventional oil will come into the picture.
To see video of our interview with Dr. Fatih Birol,visit our website: www.sbc.slb.com
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sbc.slb.com | SBC Eney Pespecves 31
The second message, which I think is
crucial and is oten missed, is that many
existing felds, especially outside o OPEC,
are in a steep decline. According to the WEO,
in the next 25 years about 47 million barrels
per day o todays production will go into
decline. That means that in order to compen-
sate or this decline in the next 25 years, we
have to fnd and develop two Middle Eastern
regions, such as a Saudi Arabia plus Iran plus
Iraq, etc. This is critical just to compensate
or the decline in existing felds. The decline
will be a major challenge in addition to the
growth in oil demand, and thereore there
is a need or signifcant investments.
EP:How do you see investors and govern-
ments balancing the increasing development
o unconventional oil and gas and the
implications or climate change?
FB:Interest in unconventional oil and gas
is growing throughout the world and there is
one major driver price, which translates
to proft. With current oil and gas prices, it
makes perect sense in many cases to increase
unconventional production. When we look at
the United States, in terms o unconventionals,
higher oil prices are driving a second revo-
lution in tight oil. We will see more and more
unconventional oil come to market.
In terms o natural gas, we have just pub-
lished a major report calledAre We Entering
a Golden Age o Gas?, and we see that a major
driver o this likely new golden age is not
only the increase in unconventional gas rom
North America, but also rom Australia,
China, and other countries. Global growth
or natural gas is expected to be very strong.
However, it would be wrong to say that
the increase in natural gas will be enough
I expect strong oil demand
growth in the years to come,
mainly, if not exclusively, driven
by the emerging countries.
CArEEr highLightS:
PhD in energy economics from the Technical
University of Vienna
Chief Economist of the IEA
Member of UN Secretary-Generals High-level
Group on Sustainable Energy for All
Chairman of the World Economic Forums (Davos)
Energy Advisory Board
Founder and Chair of the IEA Energy Business Council
D. Fa Bol
Chief Economist at the
International Energy Agency
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32 SBC Eney Pespecves | Winter 2012
inevew w
D. Fa Bol
to address our climate change problems.
Although natural gas emits less CO2 than coal,
it is not completely innocent. We will still need
renewable energies; we will still need nuclear
power; we will still need to use energy more
efciently; and we will need carbon capture
and storage (CCS) to address the issue o
sequestering carbon rom natural gas and coal.
EP:Turning to oil demand, this years World
Energy Outlook (WEO 2011) examines
booming vehicle demand in emerging
countries. Do you think that countries like
China and India will ollow the same high
oil consumption pattern as in developed
economies, or will they ollow a dierent path?
FB:I hope they dont ollow what we have
done because we did not do extremely well,
otherwise we would not be in our current
situation in terms o the energy markets,
in terms o climate change, in terms o air
pollution, in terms o trafc congestion,
and so on.
But the bad news is that they are ollowing
us. When you look at the trends highlighted
in the WEO 2011, almost all the growth in
oil demand is coming rom the emerging
countries and specifcally rom the transpor-
tation sector: cars, trucks, jets, and so on.
Yet, to be honest, this trend is justifed. In
China, 30 people out o 1,000 own a car,
whereas in Europe 500 out o 1,000 own a
car. In the United States, 700 people out o
1,000 own a car. In China, India, and other
countries, when individual incomes rise
which is happening now because they are
growing strongly one o the frst things
is to buy a car or convenience and perhaps
prestige. This, in turn, uels oil demand
growth. I thereore expect strong oil demand
growth in the years to come, mainly, i not
exclusively, driven by the emerging countries.
EP:Looking at OECD countries, it appears
that oil demand has reached a plateau, i not
a decline. Do you think that oil demand in
the OECD has peaked, and i so, is it due to
energy efciency, or just a temporary eect
o the (20082009) recession?
FB:This is one o the fndings in the WEO
2011. We think that in OECD countries oil
demand has probably reached a peak. There
are a ew reasons, one being saturation. When
you have enough income, you buy a car or
yoursel. When you become richer, you buy a
second car or the household, or the wie or
the husband. When you become richer and
richer you get a third car, but you cant buy
10 cars, so there is a saturation eect. The
second actor is efciency; there are efciency
improvements in many OECD countries
cars, or example, are becoming more
efcient. The third actor is population
growth, which has more or less stabilized in
OECD countries. As a result o these actors,
we do not expect to see OECD oil demand
return to levels seen in 2006/2007.
EP:What do you think will be the consequences
o the Arab Spring on the energy markets,
and will there be any lasting impact?
FB:It may be a very important event or the
energy sector. According to the WEO 2011,
in the next 20 years about 90% o the growth
in global oil production needs to come rom
the Middle East and North Arica because the
bulk o the reserves are there. In addition, oil
reserves outside the Middle East are in decline.
On the other hand, demand is growing, coming
rom China, India, and elsewhere.
What many people have in mind is that
the Arab Spring brings the people their
economic, social, and political reedom as
well as a signifcant increase in the wealth
o these countries as a result o their
natural resources. However, it may well be
the case that some o the countries choose a
dierent way, namely not to increase their
oil production signifcantly, but may leave it
or the next generations. This is also
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sbc.slb.com | SBC Eney Pespecves 33
justifed and legitimate, but it is dierent
rom what people expect. So i the produc-
tion growth in these countries does not
increase as signifcantly as the world
market needs, this would mean higher
prices. This is highlighted in the WEO 2011,
where we have analyzed a delayed invest-
ment case or MENA (Middle East and
North Arica) countries. We see that i
investment in these countries does not take
place in an adequate and timely manner,
or whatever reasons, it
may have substantial
implications or the
international oil market,
which will result in much
higher prices than we
have assumed.
EP:With continuing
economic ragility and
slowing growth in China
and India, should we
consider that end o the
commodities supercycle is
upon us?
FB:I am not a big an o believing in
the oil markets at least that the cycles
are going to take place orever. I believe that
we have entered an era in which cheap oil
is over. What we see today is that oil prices
are rather weak compared with a couple o
months ago, mainly because o the weakness
in the economy. The players in the oil market
see that demand may be weaker because o
a slowdown in the major emerging countries,
China and India, or perhaps the risk o
recession in Europe and maybe in the
United States. Thereore, there is currently
a temporary slowing down in oil prices.
Global economic growth is about 34%,
with OECD countries at about 2% growth,
and emerging countries increasing at 56%,
on average. We will see higher oil prices due
to increasing costs o production, due to the
act that the bulk o growth in oil supply will
need to come rom Middle East countries,
who in turn need higher prices in order to
balance their budgets. Thereore, I believe
that when the economy is back on its eet,
we can have higher prices.
EP:Turning now to clean energy and
climate change, the IEA has published
a number o recommendations aimed
at limiting global warming to 2C or less,
and has stressed that we
need to act soon to avoid
being technologically
locked in. In a post-
Fukushima world, what
trajectory are we on now?
FB: We are not doing well
in terms o climate change.
I you ollow the current
policies in place, the global
temperature will increase
by about 6C, which will
have dramatic implications
or the earth, animals,
human beings, and so on. Two years ago in
Copenhagen, we had hope o an interna-
tional, legally binding agreement, which
unortunately didnt happen. Some countries
have made some pledges, but they are not
legally binding.
In the WEO 2011, we have calculated that
even i those countries ulfll their pledges,
global temperatures would still increase
by 3.5C. According to scientists, we have
to limit the increase to 2C. We have
analyzed what needs to be done to limit
the rise to this level, and here the IEA
plays an important role because about
two-thirds o the emissions contributing
to climate change come rom the energy
sector. So what do we have to do? We see
our major policy areas.
First, we need to use energy much more
eiciently. This is very important. We must
Today, 800 million
people in sub-Saharan
Africa consume an
amount of electricityequal to that of the 17
million people in the
New York Metropolitan
Area the same
amount of electricity!
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36 SBC Eerg Perspecties | W 2012
nergy poverty is dened as a lack
o access to electricity, heat, or
other modern orms o power and
it aects about 1.6 billion people
in the world today.1 In addition, the lack o a-
ordable and reliable power supply creates sig-
nicant knock-on eects such as the lack o
industry and other income-generating activi-
ties, thereby impacting economic development
and growth.
Meanwhile, even though gas faring has de-
clined by 22%2 since 2005 (despite a 3.4% in-
crease in oil production over the same period),3
an estimated 130140 billion cubic meters
(bcm)4 o gas is still fared5 globally every year
rom upstream petroleum operations, the equiv-
alent o the total gas consumption o U.S.
households. An estimated additional 100 bcm
o natural gas is vented or lost through ugitive
emissions6 rom the oil and gas sector. The
combined fared, ugitive, and vented gas con-
tributes the equivalent o nearly 1.4 billion
metrictons o CO2 to the atmosphere annually7
(the equivalent o annual emissions rom 192
million cars).
Waste Gas i Areas f Acute Eerg
Pert sub-Saara AfricaA large share o waste gas is produced in some othe most energy-poor regions in the world (see
gure 1, page 38). With a current electrication
rate o 31%, some o the greatest challenges in
terms o energy poverty lie in sub-Saharan Ari-
cas oil and gas producing countries. Today, this
region fares 35 bcm annually, which could gen-
erate nearly 12,000 MW o electricity (hal the
continents power consumption). Nigeria, sub-
Saharan Aricas largest gas producer, has a
Waste Gas:a Crucial Componentof the Energy
Poverty DilemmaReducingwaste gascould help gas-rich regions by adding revenue,
reducing cost, and increasing energy availability, but reduction will take
more than advances in technology it will need a strongpolitical will.
B Reau Brit,
Atie Aris,
a Peter Cape
E
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..m | SBC Eerg Perspecties 37
illust
ration
by
eva
tatcheva
multidecade legacy o faring and is the largest
farer o gas per barrel o oil produced (0.0155
bcm/MMbbl versus 0.005 bcm/MMbbl or Rus-
sia).8 However, Nigerias electrication rate per
capita is particularly low, as recognized in 2010
by President Goodluck Jonathan in his remarks
on the Nigerian power plan:
Today less than half of our citizens have access
to electricity. We expend about $13 billion every
year providing power from diesel generators
when we require only about $10 billion per
year of investment over the next few years to
develop our generation, distribution, and trans-
mission capacities.9
It is estimated that over 30% o Nigerias vent-
ed and ugitive gas emissions could be cap-
tured at a prot ($16.2 billion o sales revenues
annually)10 to directly benet populations su-
ering rom energy poverty. This illustrates the
disconnect between resources in place and
utilization (see gure 2, page 39), and the
complexity and challenge o transorming
waste gas into domestic gas or electricity. Con-
sequently, it is essential to understand the ac-
tors that could help turn waste gas rom an
environmental misortune into a long-term
solution or the alleviation o energy poverty.
Trasfrig Waste Gas it Eerg Tecgica, Ecic, aPitica Caeges fr AfricaWhile marginal routine faring is associated
with the sae conduct o petroleum opera-
tions (pressure release or equipment protec-
tion, emergency faring), most o todays
waste gas is the result o ailing to align gov-
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38 SBC Eerg Perspecties | W 2012
Waste
Gas
Grossg
as
prod
uction G
as
consum
ption
Gasreinject
ion
andv
enting Flared
gas
Gasc
onsumpt
ion,
U.S.
household
s
Gasc
onsumpt
ion,
Africa
3,693 3,169
390
134 132 105
Angola 3%
Rest ofworld 28%
Rest ofWest
Africa6%
Nigeria 11%
Algeria 4%
Iraq 7%
Iran 8%
Libya 3%
Kazakhstan 3%
Russia 26%
OECD
World
Angola
Restof
WestA
frica
Nigeria
Algeria Ira
qIra
nLib
ya
European
Unio
n
Kazakh
stan
Russia
Unite
dStat
es
World Natural Gas 2010billions of cubic meters
Share of Waste Gas 2010billions of cubic meters
Energy Use per Capita 2010kg of oil equivalent
ernments and key industry stakeholders
when addressing the combination o techno-
logical, economic, and regulatory challenges
involved in gas monetization; thereby making
faring the only economically viable option
or operators.
Historical practices, an unsupportive fscal
system, and the weight o legacy
Unlike today, with increased awareness
about global warming, associated gas was
historically viewed as a waste product. Pro-
duction contracts and upstream regulatory
rameworks tolerated faring and, in many
oil productionsharing contracts, no rights
to gas were specied and there was no eco-
nomic incentive to manage (e.g., reinject) or
monetize the gas produced. Project econom-
ics were dictated purely by oil revenues.
While these views are changing both rom
a regulatory standpoint as well as within the
upstream industry, any move to better value
gas has been slow. Reasons or the inertia
include the cost o retrotting production
platorms (mostly oshore elds that have
platorm space constraints, which limit
capability to take gas equipment, especially
i gas recovery was not in the original plat-
orm design); small associated gas volumes
o individual projects that ail to support
monetization considerations; and associated
gas not being seen as a reliable long-term
supply source due to ast depletion and po-
tential damage to the reservoirs oil produc-
tion proles. As such, associated gas cannot
compete with more reliable and cheaper
sources o gas, even i it means importing gas
to meet national energy demand.
FIGURE 1: WASTE GAS ComPARATIvE STATISTICS
SourceS: BP STATISTIcAL reVIeW; NooA; WorLD BANK; SchLumBerger BuSINeSS coNSuLTINg (SBc) ANALYSIS
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42 SBC Eerg Perspectives | Winter 2012
he energy industry is at the onset o
a major transition. First, concerns
over CO2 emissions and supply se-
curity are pushing policy makers
toward energy eciency and renewables. Sec-
ond, consumers are becoming more environ-
mentally conscious, more sensitive to commodity
price spikes, and more prone to conservation.
History shows that energy transitions take de-
cades to play out. For example, it took 160 years
rom the scientic discovery o liqueaction in
1850 to LNG attaining critical mass on a global
scale (approximately 30% o all gas traded in
2010). Similarly, it took nearly 100 years or the
gasoline internal combustion engine to displace
the steam engine and move rom an initial maxi-
mum eciency o approximately 3% in 1860 to
hitting a plateau o approximately 30% by the
1950s. In both o these examples, technology and
costs were not the sole determinants o the out-
come. Externalities such as ease o distribution
and availability o supply also played an impor-
tant role in technology adoption. We are roughly
30 years into this new energy transition. In the
next 1020 years, the environment or invest-
ment will likely become attractive. Furthermore,
oil companies are in prime position to capitalize
when the environment becomes attractive; they,
unlike most venture capital rms, have the bal-
ance sheet strength and project management
savvy needed to drive large, long-timeline tech-
nology projects. Companies that take the initia-
tive now to identiy uture opportunities will
attain signicant rst-mover advantages.
The R&D DiemmOil and gas companies ace an R&D challenge
on two ronts when it comes to the energy tran-
Preparing forOpportunityIn orderfor companies to ideally position themselvesfor
the energy transition, optimal management with an integrated
approach toward technology andinnovation will be essential
in overcoming R&D challenges.
B Vivek Chidmbrm
d Tms Seregi
T
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.l.om | SBC Eerg Perspectives 43
sition. First, most energy agencies predict that
oil and gas will continue to play important roles
decades rom now. However, previous industry
down-cycles prompted oil companies to out-
source signicant parts o their technology and
innovation capability. This outsourcing put oil
companies at a disadvantage when access to
resources decreased and technical complexity
increased. Second, environmental pressures
over CO2 emissions are likely to prompt oil