Approximately 80% of global energy demand is currently met by fossil fuels and according to IEA it appears that even if policy commitments and other measures for energy efficiency and addressing climate change are implemented, the global energy demand is set to rise by a further 40% by 2035 and the share of fossil fuels will be around 75%. So is there enough oil and gas to keep us going?

There have been pessimistic prognoses on this subject almost since the beginning of oil production.  There was a legendary story of how one of the top managers of the then-largest oil company in the world, Standard Oil, sold his shares in the company because he thought oil was running out.

But the real problem facing the world is less about oil and gas running out and more about the ability to explore and realize all of the current fields.  In this sense, new technologies have not only been key to the start of the oil and gas industry, but are also key to our understanding of its future.

As evidence of this, allow me to take a short excursion through history and recall a time when the first well for oil exploration was drilled thanks to the initiative of the engineer Semyonov in 1846 at Bibi-Eibate near Baku.  The well did not produce oil, which delayed the global development of the industry by over a decade.  In 1859, in a totally other part of the world, in the American state of Pennsylvania, Edwin Drake drilled a well.

As reported by New York Times in 1859, Drake “to the surprise and joy of everyone found he had tapped a vein of water and oil, yielding 400 gallons of pure oil every 24 hours.” He was drilling to a depth of 71 feet!

But oil was not discovered in 1859; it had been in use for thousands of years around the world. What Semyonov and Drake achieved was a method for producing large quantities of oil. Innovation through technology became the major driver in the industry. To this day technology has continued to develop in two major directions: discovering more quantities of petroleum from increasingly complex geological structures and bringing these reserves to the surface from great depths and in challenging conditions.

The first centrifugal pump for oil extraction, developed in 1916 by the Russian inventor Armaiv Artyunov; the development of portable offshore drilling in 1928, the introduction of catalytic cracking in 1936, the first commercial oil well out of sight of land in the Gulf of Mexico in 1947, synthetic oils in the 60s, digital seismology and mud pulse telemetry in the 70s, the remotely operated vehicles for sub-sea work of the 80s, and the Hoover-Diana vessel of the millennium are just some of them.

So will new technological breakthroughs mean an Increase in Reserves in the Near Future?

Fossil fuels are abundant around the world; there are sufficient quantities to meet expected demand. However, much of these resources face technical or environmental difficulties or are too costly to extract and therefore not classified as reserves. These more technically demanding resources be exploited as the more accessible, conventional reserves are exhausted. The ability to convert resources to reserves (a key role of the oil and gas industry) depends heavily on the application of advanced technological solutions, in turn strongly linked to fuel prices. Exploring and extracting these reserves economically and respecting the environment, means investment in new innovative solutions, stimulated by higher fuel prices.

According to IEA, proven reserves of conventional oil are estimated at around 1.3 trillion barrels; remaining recoverable oil resources at 2.7 trillion barrels; proven reserves of unconventional oil are 400 billion barrels and estimated recoverable resources 3.2 trillion barrels; proven reserves of conventional gas are estimated at 220 trillion cubic metres, equivalent to 1.4 trillion barrels of oil and remaining recoverable resources at 460 tcm, whilst proven reserves of unconventional gas, are very difficult to assess.

If we believe the estimates of the IEA, even a 1% increase in the average recovery factor could add around 6% to global proven oil reserves. Such recovery is largely been driven by technology: horizontal/multilateral drilling, improved seismic acquisition, four-dimensional seismic techniques and improved subsea facilities. Recent accelerated developments in smart fields (fields that use a whole range of technological solutions), even higher recovery rates can be achieved, whilst adopting enhanced oil recovery (EOR) techniques will contribute further to recovery, subject to addressing the significant complexity of implementation.

And another important observation:  The development of technologies and changes in our understanding of reserves of oil and gas may also have great impact on the  rankings in the global energy market and shuffle the deck of the major players.  With new possibilities to develop remote and non-traditional forms of fuel, some countries which used to import oil and gas may become energy exporters in the near future.  For example, the US, which has finally found an economically effective way of developing its vast shale gas fields.  But these changes are also a challenge for today’s industry leaders, for, within just 20 years, the US will, at the very least, be playing as important a role as Russia and the Middle East do today.

If we speak of drilling, the frontier locations for conventional hydrocarbons are now in ultra-deep water and in the Arctic, with the preservation of its sensitive environment adding to the complexity of exploration and production of such these locations, where subsea processing and compression are required to allow transfer by pipeline to distant facilities from remote fields.

Mining operations to develop shallow reserves of extra-heavy and oil-sands resources are increasing, whilst deeper deposits are developed by using steam. Carbon capture and storage are essential components of such developments due their energy intensity

As an example, let’s look at the Mediterranean, and Cyprus in particular.  Here, significant natural gas finds in recent years have already come to production (Egypt, Tamar in Israel) or are being developed (the Leviathan field in Israel). Others such as Plot 12 in Cyprus are at appraisal stage, whilst Total, ENI and KOGAS are preparing for exploration in other Cyprus plots next year. Cyprus and the Eastern Mediterranean are examples of how new technologies help convert resources to reserves and then enable exploration companies to bring them to production points. Certainly there are technological challenges ahead, which current technology can address, but 10-15 years ago drilling at such depths was not technically feasible. To a small country like Cyprus the wise and measured development of its oil and gas industry and the revenues from exploitation of these reserves will transform its economy, creating new opportunities for the island’s bustling tourism, its innovative and entrepreneurial service industry and a new sector around energy.

But, for Cyprus, drilling for natural has is a wholly new industry which requires significant investment in development.  And this is why the island’s government is looking toward global leaders to help, including Russian companies, who could bring not only investment but also their experience and technological innovation.  And herein lie new opportunities for big Russian players.

With natural gas the principal challenge of the past was to bring the gas to market. Today, liquefied natural gas (LNG) provides a cost-effective solution in many cases. Recent new technological developments are towards offshore floating LNG options (liquefaction on a vessel), with the first to be built in the sea north-west of Australia, and other technologies. The Cyprus government is currently promoting the creation of an LNG plant in Cyprus, able to cater for the needs of other countries in the area, predominantly Israel. Following the Russian government’s recent decision to allow other players to export LNG from Russia is likely to attract the attention of other Russian big oil companies and in this respect the Cyprus LNG facility maybe of interest to them. Exploration rights holders have been invited to participate, but other interested players (potential clients, investment funds and other LNG operators etc.) may be considered.

All in all, new technologies are likely to contribute to global production in the future, always bearing in mind the cost to price balance. Clearly, the overall increase in production also depends at the rate at which existing projects mature and on our ability to overcome environmental and technical challenges, stimulated by rising fuel prices. However, rising fuel prices may also have an opposing effect on production of fossil fuels, as they also stimulate the deployment of renewables.