ENERGY 2020 VISION: OIL & GAS
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ENERGY 2020 VISION:
OIL & GAS
1
CONTENTS
EXECUTIVE SUMMARY............................................................. 3
GLOBAL....................................................................................... 4
AUSTRALIA................................................................................ 10
CANADA.................................................................................... 16
US...............................................................................................20
SAUDI ARABIA..........................................................................26
UK...............................................................................................28
2
EXECUTIVE SUMMARY
The oil price collapse in late 2014 technological transformation, and SUMMARIZING BDO’S 4. INVESTMENT IN TECH:
signified a fundamental change diversify its portfolio to include GLOBAL ENERGY 2020 While overall spending on R&D
in the energy marketplace. While alternative energy sources. VISION FOR OIL & GAS: may decline, most of the spending
prices have rebounded from the that does occur will go towards
Reflecting on this period of turmoil 1. OIL PRICES:
low of $26 per barrel in 2016, the technologies that enhance
and transition, BDO’s Global By 2020, low oil prices—expected to
supply and demand dynamics that exploration and production (E&P)
Natural Resources team is looking remain at or below the $60 per barrel
led to the downturn—a supply efficiencies.
towards the future to help oil & gas mark—will spur Gulf Cooperation
glut due in large part to U.S. shale
companies anticipate and plan for Council countries to diversify their 5. DATA DEMOCRATISATION:
and stagnating growth in global
the challenges and opportunities energy mix within the power sector By 2020, the average E&P company
demand—are here to stay. Efforts
ahead. We believe that to prepare using auctions to subsidize renewable will make use of 10 percent of its big
to rebalance the markets have
for success in 2020 and beyond, energy projects. data—up significantly from today,
helped inventory levels recover,
oil & gas companies must strive but nowhere near full potential.
but those efforts are contingent 2. CYBERSECURITY:
to become “Lean, Green, Digital”
CHARLES DEWHURST on key producers limiting output. By 2020, at least five countries will
machines.
t: + 1 713-548-0855 Gone are the days when success was see foreign hackers take all or part
Agree or disagree with our
e: cdewhurst@bdo.com linked almost exclusively to high The global predictions presented in of their national energy grid offline
predictions? We want to know —
production volumes and growing this report are based on research and through Permanent Denial of Service
reach out to us here.
reserves. collective input from BDO’s Natural attacks.
Ready or not, the Resources leaders around the world. CHARLES DEWHURST
It’s the confluence of trends—not 3. GLOBAL ENERGY TRADE:
global oil & gas industry just the new pricing paradigm,
In addition, the practice leaders from
By 2020, the growth of LNG imports
Global Natural Resources
must contend with an five countries (Australia, Canada, the Industry Practice Leader
but rapid growth in renewables and solar power will bring electricity
United States, the United Kingdom, +1713-548-0855
ever-changing ‘normal’. along with accelerating technology
and the Kingdom of Saudi Arabia)
to four in five African people.
cdewhurst@bdo.com
advancements—that is reshaping
have provided regional predictions
the industry. The energy company
for the industry in their markets.
of the future is one that has
successfully figured out how to
cut costs, enhance operational
efficiencies through digital and
3
BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF OIL & GAS
GLOBAL PREDICTIONS
4
GULF COUNTRIES DIVERSIFY WITH WIND AND SOLAR
PREDICTION 1
OIL PRICES
BY 2020, LOW OIL PRICES— The pressure is on for GCC sources in the area. Countries Although GCC countries have set
EXPECTED TO REMAIN AT OR countries—Saudi Arabia, Kuwait, the are starting to make renewables targets for deployment of renewables
BELOW THE $60 PER BARREL United Arab Emirates, Qatar, Bahrain, realistic through auction-based at the national or local level, the
MARK—WILL SPUR GULF and Oman—to diversify away from approaches to subsidies. Through region has seen little deployment.
COOPERATION COUNCIL oil, especially when it comes to auctions, countries set a target By 2020, we predict that relatively
electricity production. level of investment in renewables low oil prices will spur GCC countries
(GCC) COUNTRIES TO
and allocate contracts to the to diversify their energy mix within
DIVERSIFY THEIR ENERGY The rising domestic demand for
most cost-effective bidders. the power sector. As utility-scale
MIX WITHIN THE POWER oil, especially in the power sector,
Almost 50 countries have adopted installed solar and wind costs
SECTOR, USING AUCTIONS is hindering the GCC countries’
this approach, and almost 30 continue to decline, they will use
TO SUBSIDISE RENEWABLE ability to export oil and causing their
additional countries are considering renewable energy auctions to begin
economies to contract. In October
ENERGY PROJECTS. following suit. reaching their deployment targets.
2017, the International Monetary
Fund (IMF) cut the 2018 GDP
forecasts for the GCC states from
2.5 percent to 2.2 percent. Non-oil
related economic growth is expected
to reach 2.4 percent in 2018—well
below the 6.7 percent average seen
$60
from 2000-2015. Oil-exporting
countries across the broader region
saw their fiscal deficits skyrocket
from 1.1 percent of GDP in 2014 to
10.6 percent of GDP last year.
GCC countries’ current trajectory is
unsustainable. Most have already
begun importing LNG because of
the shortage in cheap natural gas,
further underlining the need for
efficient, non-hydrocarbon energy
5
ATTACK AGAINST THE GRID: A DRESS
REHEARSAL FOR WHAT’S TO COME?
PREDICTION 2
CYBERSECURITY
BY 2020, AT LEAST FIVE The advances in technology that Any disruption to a country’s electric WE PREDICT THAT
COUNTRIES WILL SEE allow the energy industry to create grid would have serious implications TODAY’S ATTACKS ON
FOREIGN HACKERS TAKE new efficiencies and innovations at for virtually all industries, especially THE GRID ARE A DRESS
ALL OR PART OF THEIR the same time require connectivity critical ones like healthcare, REHEARSAL FOR A MUCH
NATIONAL ENERGY that leaves power grids around transportation, security, and financial
MORE MALICIOUS TYPE
the world more vulnerable to services. Since 2011, a dedicated
GRID OFFLINE THROUGH OF ATTACK: PDOS. BY
cyberattacks. and sophisticated group of cyber
PERMANENT DENIAL OF attackers known as Dragonfly has 2020, AT LEAST FIVE
SERVICE (PDOS) ATTACKS. Several electric grids around the COUNTRIES WILL SEE
been targeting the energy sector
world have already come under FOREIGN HACKERS TAKE
in Europe and North America. The
threat in recent years, most through ALL OR PART OF THEIR
group has used Trojanised software,
Distributed Denial of Service (DDoS)
spear phishing emails and watering ENERGY GRID OFFLINE
attacks. In 2015, an attack on a grid
in the Ukraine temporarily cut power
hole websites to gather intelligence WITH THE INTENT TO
with the potential for sabotage. DESTROY IT.
to more than 200,000 people. A
subsequent attack occurred just a While the number of total DDoS
year later, reportedly carried out by attacks decreased by 18 percent
Russian actors. In May 2017, officials year-over-year in Q2 2017, there was
from the Baltic states—which a 19 percent increase in the average
are connected to Russia’s power number of attacks per target. This
network but plan to move to the could indicate that the quantity
European Union’s grids—said their of DDoS attacks may be waning,
power grids were targeted by Russia but the severity of each attack
through a series of DDoS attacks. is increasing.
“On a daily basis there are DDoS
attacks designed to probe network
architecture, so it could well be
possible that something (serious)
could take place later on,” a NATO
official told Reuters.
6
LNG & SOLAR: THE PAIR THAT COULD FLIP THE
SWITCH IN AFRICA
PREDICTION 3
GLOBAL ENERGY TRADE
BY 2020, THE GROWTH Africa represents 16 percent of Electricity in Africa has remained Renewable energy has begun to help
OF LNG IMPORTS AND the world’s population but just 32 expensive—a particularly difficult more Africans turn and keep the
SOLAR POWER WILL BRING percent, or 1.5 in 5 African people, barrier for its population. However, lights on, and LNG exporters—and
ELECTRICITY TO 4 IN 5 have access to electricity. The growth as noted by the Africa Energy their investors—will follow this
AFRICAN PEOPLE. of liquefied natural gas (LNG) could Outlook, “huge renewable resources initial track. By 2020, we predict
change that. remain untapped,” with further that the growth of LNG imports and
potential from excellent solar solar power within Africa will bring
While many governments in Africa,
capabilities across all of Africa. electricity to four in five people on
especially in sub-Saharan Africa,
Foreign solar companies have taken the continent.
have intensified efforts to invest
notice and have installed solar
in domestic energy production,
microgrids or home-based solar
inadequate energy infrastructure
systems across sub-Saharan Africa.
has stood in their way. Two out of
At the same time, African countries
every three dollars invested into the
have begun building import facilities
sub-Saharan energy sector since
for LNG, including a facility in
2000 have been used to develop
Ghana—the first import facility in the
energy to be exported rather than for
sub-Saharan market. The continued
local consumption.
growth in solar power across Africa
LNG expansion is forecast to help could improve the wider energy
natural gas demand outpace demand infrastructure, creating a ripple effect
for oil and coal through 2040. and attracting foreign LNG exporters
Africa presents an opportunity for to invest in pipeline construction,
LNG producers to find new sources a further boon to their business.
of demand.
7
INVESTING IN TECH TO
KEEP THE LIGHTS ON
PREDICTION 4
INVESTMENT IN TECH
WHILE OVERALL SPENDING As downward pricing pressures Technology is present throughout While oil & gas companies have
ON R&D MAY DECLINE, rage and with much of the world’s the energy supply chain, from in the past been labelled “low
MOST OF THE SPENDING easy-to-reach oil already consumed, locating oil wells and extracting R&D intensity,” investing less than
THAT DOES OCCUR oil & gas companies are tasked with reserves to refining and transporting 1 percent of net revenue in R&D,
WILL GO TOWARDS producing more with less—or risk the commodity. Oilfield services spending on innovation and R&D
shutting their doors. To accomplish companies like Halliburton and has increased notably over the last
TECHNOLOGIES THAT
this, energy companies, historically Schlumberger note that their few years.
ENHANCE EXPLORATION slow to do so, are investing in customers already use high-tech
AND PRODUCTION (E&P) Investing in innovation is the first
new technologies to increase equipment and data analytics to
EFFICIENCIES. step towards global oil & gas
operational leanness while boosting determine whether a well will
companies reducing expenditures
profit margins. produce enough oil to make it
while maximising production and
economic—before the drilling begins.
maintaining margins. By 2020, while
Others are using more advanced
their overall R&D spending may
technologies to “refrack” wells
decline, oil & gas companies will
originally drilled using less advanced
put most of their remaining dollars
technologies to extend their shelf life
into technologies that boost E&P
and further capitalise on them. When
efficiencies in an effort to do more
it comes to new wells, engineers use
with less.
software and sensor technology to
determine the right combinations
of chemicals, sand, and water to
maximise extraction. When deciding
where to drill, E&P companies
already rely on a combination of
Monte Carlo simulations and 3D
seismic surveys to generate 4D
seismic imaging and project future
physical changes to the oilfield and
reservoir. Using current technology,
the industry has about an 80 percent
overall drilling success rate.
8
DEMOCRATISATION OF DATA
PREDICTION 5
DIPPING INTO THE DATA
BY 2020, THE AVERAGE E&P As the adoption of new technologies rig technology can track progress industry effectively. As a result,
COMPANY WILL MAKE USE quickens, the upstream sector’s continuously and create more most data collected from upstream
OF 10 PERCENT OF ITS BIG access to data will grow accurate and safer drilling processes. operations, while it may be used
DATA—UP SIGNIFICANTLY exponentially. Under the pressure of When it comes to extraction, for issue detection and control,
FROM TODAY, BUT subdued oil prices, the ability to tap data can be analysed to conduct is never used for performance
into that data becomes a lifeline. predictive maintenance on wells and optimisation. The average offshore
NOWHERE NEAR FULL
determine whether certain wells rig has 30,000 data-generating
POTENTIAL. Upstream companies place tens
should be re-fracked. sensors, but less than 1 percent of
of thousands of data-collecting
that data is analysed and used in
sensors within wells and surface While most E&P companies have
decision-making.
facilities to monitor assets and adopted new technologies, they still
environmental conditions in real lack the data analytics capabilities As tech companies begin to partner
time. When used correctly, data can needed to extract the maximum more with the E&P sector, we expect
create efficiencies across the entire value of that data. Upstream innovation to accelerate and better
E&P process—from locating and companies are often unable to data integration across organisations
extracting hydrocarbon to arranging integrate different sources of data, to take shape. By 2020, we predict
for delivery to trucks and pipelines and information gathered from the average E&P company will make
for transport and refinement. In the different datasets is left in silos, significant strides towards data
discovery stage, E&P companies unavailable to decision-makers who democratisation, making use of 10
can use data analytics to analyse need it most. Technology companies percent of its big data—up notably
year-on-year geological survey data providing the data infrastructure from today, but still nowhere near
to determine the best places to drill. are often unaware of how to full potential.
During the drilling phase, drill bit and apply the analytics tools to the oil
9
BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF OIL & GAS
IN AUSTRALIA
10COULD TRUMP RISK TOPPLE US’S ASPIRATION TO BE
ON TOP OF THE LNG TOWER?
PREDICTION 1
LNG INVESTMENT
BY 2020, AUSTRALIA Australia is the world’s second- Seeing the opportunity, oil & gas Whilst the US is currently the world’s
WILL TAKE THE TOP SPOT largest LNG exporter behind Qatar. majors will maximise the value largest producer of gas, the political
AMONG THE WORLD’S Over the last decade, Australia of existing assets and returns risk under the Trump administration
LNG EXPORTERS. has made significant investments from significant LNG investment. will amplify Australia’s footprint in
(more than $200 billion) in major Expansion projects will likely be in the LNG market, appealing strongly
capital projects. Cost overruns and the pipeline by 2020, further driving to Asian buyers, including Japan,
delayed schedules have caused a shareholder return. Lessons can China, and India.
plateau in investment by the oil & be learned from companies that
gas super majors, which will create developed Australia’s significant
opportunities for small to mid-sized LNG projects, including Wheatstone,
players and large domestic players to Gorgon Project, and Ichthys. These
enter the market and build market will ultimately drive expansion by
position. Smaller floating liquefied leveraging the existing base projects
natural gas (FLNG) technology and infrastructure, and established
will be one mechanism to achieve regulatory approvals and hubs. This
this through commercialisation of will allow for additional LNG trains
stranded gas fields. and processing off the Western
Australian coast.
11GAS SHORTAGES FUEL
UNCONVENTIONAL PROJECTS
PREDICTION 2
MAXIMISING
INFRASTRUCTURE
BY 2020, LNG The gas shortages on the east coast The Australian Federal Government
INFRASTRUCTURE IN of Australia have become a major will support investment in
WESTERN AUSTRALIA political issue for the government. unconventional gas projects on
WILL BE THE SOURCE OF The key decision currently under waterways and wind back regulations
LNG IMPORTS INTO THE debate surrounding investment in for development of onshore gas for
the transcontinental gas pipeline the domestic market. As part of the
EAST COAST.
will likely come to fruition. The solution to address the gas supply
highly speculative venture will shortfall, current LNG infrastructure
connect Western Australia to the in Western Australia will be used as
east coast gas hub at Moomba the source of LNG imports into the
in South Australia, providing an east coast.
industry-led solution to the east
coast gas shortages and catering
to large industrial consumers and
households.
12ATO TRANSFER PRICING SETTLEMENT SHINES
A SPOTLIGHT ON OIL & GAS COMPANIES
PREDICTION 3
REGULATORY SPOTLIGHT
BY 2020, REGULATORS The success of the Australian The success of the Chevron case will By 2020, there will be record fines
WILL DEMONSTRATE Taxation Office (ATO) in the transfer also encourage the ATO to increase and settlements being paid by oil &
GREATER SCRUTINY AND pricing dispute with multinational surveillance on the debt funding of gas companies.
SURVEILLANCE OF OIL & oil giant Chevron will be a precedent Australian investments by foreign
GAS COMPANIES. for Australian authorities to pursue multinational enterprises in the
multinational oil & gas companies. future. The implications will extend
Regulators will also have stronger beyond the major players, including
positions in enforcing anti-bribery smaller and mid-cap organisations
legislation, such as the US Foreign and will drive significant revenue
Corrupt Practices Act (FCPA) and UK back to the Australian government.
Bribery Act, leading to a new revenue
source for governments.
13REDEFINED TRADE FLOWS FUEL
NEW FINANCING METHODS
PREDICTION 4
REDEFINED TRADE FLOWS
BY 2020, THERE WILL BE As Europe, Russia, and Asia become There will be a proliferation of
A SHIFT IN ECONOMIC more intertwined, we predict small and short-lived oil fields, no
ACTIVITY WHICH WILL that consumers will push towards longer dominated by multinational
REDEFINE TRADE FLOWS shorter-term contracts. There is organisations, which will provide
AND CALL FOR NEW already widespread speculation flexibility to customers and to
that many Asian customers are operating companies.
METHODS OF FINANCING
seeking arbitration and shorter-
NEW PROJECTS. term contracts to provide flexibility,
thus fuelling the desire for “micro”
projects. Micro projects require
less capex and long-term capital
commitment carrying lengthy
contracts that underpin the
development process.
14ETHICAL SOURCING WILL LEAD TO MANDATED
TESTING
PREDICTION 5
PROOF OF ORIGIN
BY 2020, ALL OILS WILL BE The heightened focus on ethical A secure, complex method of
SUBJECT TO PROOF-OF- sourcing of products, along with the identifying oil and fuel production
ORIGIN TESTING. import and export sanctions such will be the key enabler, with
as those in place on North Korea technologies such as graphene
and Qatar, will lead to a mandate quantum dots already being used
on “proof-of-origin” testing for to trace shipments that contravene
oil production. international sanctions. Graphene
quantum dots fluoresce and can be
configured with a specific spectrum
assigned to a particular well or
producer. Such technologies may
also assist with auditing production
sharing contracts.
CONTACT
Sherif Andrawes (Partner) +61 (08) 6382 4763
Andrew Hillbeck (Partner) +61 (08) 6382 4750
15BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF OIL & GAS
IN CANADA
16CLOUD COMPUTING TAKEOVER
PREDICTION 1
SHIFTING ASSETS
BY 2020, TRADITIONAL Many oil & gas organizations look to There are various types of cloud servers, storage, and other
ACCOUNTING RULES WILL capitalize large capital expenditures computing arrangements in the components on behalf of its users.
PRESENT NEW CHALLENGES through traditional capex and Opex marketplace, including:
expenditures. With the adoption of With an ever-increasing number
FOR FINANCIAL PLANNING, • Software as a Service – This of options available to companies
FORECASTS, AND ASSET cloud technologies, this will continue
arrangement is a software transforming their business models,
to present challenges in 2020 as
MANAGEMENT, AS OIL & GAS distribution model where a cloud computing arrangement may
companies shift their large capital
COMPANIES INCREASINGLY expenditures to the cloud.
applications are hosted by the not fit into a specific standard and,
LEVERAGE INNOVATIVE service provider and the purchaser thus, entities may need to look at the
SOFTWARE SOLUTIONS. Halliburton is an example of has access to the software Conceptual Framework to determine
a price-conscious cloud user. through a network. The customer whether there is an asset in the
The company has used cloud maintains all infrastructure arrangement.
technologies most aggressively in and hardware.
new business ventures, where the IFRS 15 uses a completely new model
• Platform as a Service – This for recognizing revenue that is more
cost of deploying new on-premise
arrangement is a model where prescriptive. The changes aren’t only
solutions, combined with the risk
the cloud provider delivers for revenue recognition, but also
of over-investing in resources in an
both hardware and software many areas around revenue. In these
unpredictable demand environment,
tools needed for application cloud-based scenarios, there is a
make the cloud’s value proposition
development. The provider hosts risk that the accounting will impact
particularly compelling.
the hardware and software such business procurement decisions.
In the quest to be leaner during that the customer does not By 2020, traditional accounting
economic downturns, oil & gas need to perform installation or rules will present new challenges
companies in 2020 will be turning purchase in-house hardware and for financial planning, forecasts,
many of their operational systems software. This model does not and asset management, as oil & gas
to cloud-based technologies replace the full infrastructure of companies increasingly leverage
and leveraging the power of the customer’s needs. innovative software solutions.
connected machinery. Reducing
• Infrastructure as a Service – Greater transparency and monitoring
cost and complexity of large
This arrangement is a model of these cloud software costs in the
capital expenditures that could be
where virtualized computing income statement is recommended
traditionally capitalized from an
resources are provided over the to avoid unconscious bias and to
accounting perspective simplified the
internet. The third-party provider provide a clearer basis for decision-
process. But the cloud and a desire
hosts the hardware, software, making in strategic investments
to rent versus buy is changing that.
by executives. 17THE DEATH OF CONVENTIONAL BUSINESS
PLANNING
PREDICTION 2
MODERN BUSINESS
PLANNING
Project success rates are rising. Common mistakes to avoid? • Not carefully thinking about
BY 2020, CONVENTIONAL Organizations today are losing an the behaviors the KPIs will drive
• Allocating too many irrelevant
APPROACHES TO BUSINESS average of US$97 million for every towards achieving the strategy
metrics to the executive
PLANNING WILL NO US$1 billion invested—a 20 percent
scorecards so that executive • Not directly linking the metrics
LONGER BE SOPHISTICATED decline from last year.
conversations lose focus on the and KPIs to the strategy
ENOUGH TO RESPOND Today’s organizations operate in a critical few and the intent is lost
Oil & gas organizations will need to
TO DYNAMIC CHANGES new working environment. Ongoing
• Not providing context of the continue to focus their corporate
IN TODAY’S BUSINESS economic and political uncertainty,
metrics or discussing how the strategies to avoid these common
ENVIRONMENT. speed of innovation, shifting
executive can influence the mistakes and take measures to align
customer and employee demands,
metrics operational performance with a
more visibility into organizational
strong set of KPIs that are realistically
activities, and an increasingly diverse • Insufficient time and effort spent
embedded into the corporate culture
set of stakeholders have impacted all on setting targets for metrics and
and back digitally enabled platforms.
oil & gas companies. building action plans to meet or
exceed those targets
By 2020, conventional approaches
to business planning will no longer • Insufficient data transparency to
be sophisticated enough to respond allow executives to measure their
to dynamic changes in today’s ongoing performance
business environment. With such
• Not allocating sufficient decision
approaches, business plans can end
rights to executives to allow them
up disconnected from the day-to-
to influence the metrics
day reality of the organization and,
ultimately, the business planning • Failure to set an appropriate
process becomes an exercise in benchmark for the metric
playing catch-up rather than a path
• Failure to communicate shared
to desired results.
ownership of metrics across the
organization where more than one
department influences the metric
18ENTERPRISE RESOURCE PLANNING EVALUATIONS
WILL RISE
PREDICTION 3
RE-EVALUATING ERP
PLATFORMS
While many assume that the oil Why will oil & gas entities need to 3) A
ctive compliance and
BY 2020, OIL & GAS & gas sectors look like any other re-evaluate their platforms? Four policy management
ORGANIZATIONS WILL BE industrial business, when it comes to key reasons: This feature set is where some
FORCED TO RE-EVALUATE Enterprise Resource Planning (ERP), ERP platforms perform like stars
1) Real-time hard and soft
THEIR ENTERPRISE operational specific elements will while others don’t. The oil & gas
asset control
drive organizations to examine their sectors are highly regulated, with
RESOURCE PLANNING Asset controls in the oil & gas
overall approach given the uptick in hosts of federal, state, and tribal
(ERP) PLATFORMS. M&A activity from 2016 to 2017.
sectors are critical to efficient
rules being applied quarter-over-
operations. Because of this nest of
quarter. Over time, these clusters
By 2020, oil & gas companies requirements, some ERP platforms
of regulations and policy sets
will face an existential pressure are unable to deal with these
have sometimes weighed on oil
to achieve a step change in cost elements efficiently and must
& gas operations.
and productivity. This typically ensure that potential vendors are
has hundreds of separate and up to scratch in this area. tandardized data processes
4) S
incompatible systems, and a big ERP In the same way that regulations
2) Thin systems integrations
investment that is costly to maintain, and levels of process efficiency
This value point typically applies
difficult to change, and unsuitable for apply to oil & gas operations, the
to the speed of operations. If
a digital world. ability to leverage standardized
you find that a particular ERP
processes that maintain an ERP
platform is difficult to integrate
datastore becomes equally
with third-party components, you
important.
are probably looking at the wrong
system. Opportunity costs relating
to oil & gas sectors are enormous,
so you don’t want to find yourself
slowed down by one or more
difficult affiliate components.
CONTACT
Justin Friesen (Partner) +1 403 205 5770
Stephen Payne (Partner) +1 416 525 1762
Hetal Kotecha (Partner) +1 403 213 5447
19BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF US
OIL & GAS
20LNG: THE US’S FOR THE TAKING?
PREDICTION 1
GLOBAL ENERGY TRADE
BY 2020, 30 PERCENT OF As the largest global natural gas Qatar and Australia currently Asian markets will be a key source
LIQUEFIED NATURAL GAS producer, the US is already a force to hold the titles as the number one of demand for US LNG in 2020.
(LNG) EXPORT CAPACITY be reckoned with in the international and number two LNG exporters, The European Union and the United
WILL BE BUILT IN THE US, energy trade. The nation’s market respectively, but the US is uniquely Kingdom will also be prime markets
MAKING IT ONE OF THE share will continue to accelerate positioned to emerge as another for US LNG, as they move to lessen
leading up to 2020, buoyed by active global LNG leader. While well- their dependency on Russian gas in
LARGEST GAS EXPORTERS
shale drilling, and LNG is a pivotal positioned geographically to reach favor of a more reliable, consistently
IN THE WORLD. element of our projected growth the Asian market, Australia is at the priced LNG supplier.
trajectory. By 2020, the US will be same time saddled with the costly
one of the largest gas exporters in task of strengthening infrastructure.
the world, accounting for 30 percent In Qatar’s case, the blockade
of LNG export capacity. imposed by Saudi Arabia, the UAE,
Egypt, and Bahrain dominated
Forecasts from the US Energy
headlines this year. While it is likely
Information Administration (EIA)
that the Qatar-Gulf crisis will reach
peg LNG exports at 2.8 billion cubic
a resolution ahead of 2020, turmoil
feet per day in 2018 – more than
is an unfortunate constant in the
five times 2016 quantities when
Middle East, dampening Qatar’s
the first LNG shipment left US
long-term potential to be an LNG
shores. The marriage of established
leader.
infrastructure, inexpensive
production costs, and regional
stability equip the US with a strong
foothold in the market.
21US POWER GRID: A CYBERCRIMINAL’S
HOLY GRAIL
PREDICTION 2
CYBERSECURITY
THE US NATIONAL ELECTRIC The US national energy grid hasn’t a larger-scale attack like PDoS.
GRID WILL BE THE TARGET fallen victim to a cyberattack yet, but
As one of the largest and most
OF A PERMANENT DENIAL its days are numbered. At the time
sophisticated economies, an
OF SERVICE ATTACK (PDOS) it was constructed, physical—not
attack to the US’s power grid is
BY 2020. cyber—security was the key priority,
the holy grail for cybercriminals.
opening the grid up to vulnerabilities.
Cyberwarfare is a worsening national
Ukraine and Finland’s power grids
security threat, and the US energy
were recent targets of Distributed
industry is a likely battleground for
Denial of Service (DDoS) attacks,
early attacks.
causing a temporary disruption to
services or operations. The power sector isn’t the only
slice of the energy industry with
By 2020, we expect the US critical
a target on its back. A cyberattack
infrastructure will be the victim of an
to the nation’s pipelines—targeting
even nastier strain of cyberattacks—
a key junction so fuel can’t flow
permanent denial of service (PDoS).
through—could disrupt oil exports
True to its name, PDoS attacks aim
and domestic supply. Cyber
for permanent destruction and
vulnerabilities extend throughout
can manifest in three key ways:
the oil & gas supply chain, impacting
Destroying physical equipment and
all companies from exploration
structures, disabling services and/or
and production (E&P) to oilfield
wiping out data.
services (OFS).
With increasing success since 2011, a
sophisticated group of cyber hackers
called Dragonfly have used Trojan-
horse software, ransomware, and
targeted spear-phishing attacks on
energy facilities and executives to
gain access to critical information
systems and operational databases,
potentially laying the groundwork for
22TO DRILL OR NOT TO DRILL: TECH ELIMINATES
THE QUESTION
PREDICTION 3
TECHNOLOGY
DIGITIZATION AND The energy industry may power the machine learning, augmented drilling success rate. By 2020, US oil
TECHNOLOGICAL world, but technology is the force and virtual reality, cloud software & gas companies will have achieved
ADVANCEMENTS—THE fueling the oil & gas sector behind solutions, and the Industrial Internet a success rate between 95 to 100
NEXT GENERATION OF the scenes. Technology is present of Things (IIoT) to the oilfield. percent for locating and assessing oil
SEISMIC IMAGING AND throughout the energy supply chain, reserves, eliminating a key risk in the
Which stages of exploration and
from locating oil wells and extracting exploration process.
PREDICTIVE ANALYTICS— production are on the verge of
reserves to refining and transporting
WILL NEARLY ELIMINATE the commodity. With the acute
a digital revolution? Continued Oil & gas companies have worked
EXPLORATION RISK FOR OIL innovation will lead to greater tirelessly to harness technology in
understanding that advanced
& GAS DRILLING AND WILL precision and accuracy during crucial recent years, but today’s cutting-
technology increases operational
PROPEL THE US INDUSTRY decision-making junctures, including edge advancements are only the
leanness and profit margins, energy
the first core decision: to drill, or not beginning. Technology is an untapped
TO ACHIEVE A DRILLING companies have always been early-
to drill. Today, E&P companies rely oilfield, primed for exploration.
SUCCESS RATE BETWEEN 95 adopters of technology.
on a combination of Monte Carlo
TO 100 PERCENT. A recent partnership forged between simulations and 3D seismic surveys
oilfield service company (OFS) to generate 4D seismic imaging
Halliburton and Microsoft offers a and project future physical changes
preview of the digital transformation to the oilfield and reservoir. Using
ahead for oil & gas. The pair teamed current technology, the industry
up to collaborate on bringing has about an 80 percent overall
23UP FOR DEBATE: US PIPELINE TO CENTRAL AMERICA
PREDICTION 4
ENERGY INFRASTRUCTURE:
IN 2020—A US The year is 2020, and the next US Central to the debate about While the ultimate outcome of
PRESIDENTIAL ELECTION presidential election is upon us. strengthening trade with the that discussion is largely dependent
YEAR—THERE WILL BE Candidates take the stage and are region is developing the necessary upon the resolution of the North
DISCUSSIONS ABOUT posed with the following topic for infrastructure. Constructing a new American Free Trade Agreement
CONSTRUCTING A debate: expansion of US energy trade pipeline through Mexico into Central (NAFTA) renegotiations and the
with Central America. America, or extending one of the winner of the 2020 election, we can
NATURAL GAS PIPELINE
nearly 20 US-Mexican gas pipelines, predict one thing for certain: The
FROM THE US TO CENTRAL Central America—and Latin America,
has been proposed as the conduit for possibility of constructing a pipeline
AMERICA, USING MEXICO more broadly—is experiencing an
natural gas trade in the region. between the US and Central America
AS THE ROUTE. energy transformation, and the
will be revisited during the next
region’s growth shows no signs of
presidential debate.
slowing. The question of how the
US can best tap into that emerging
market will continue to persist well
into 2020, particularly as it relates
to the demand for natural gas in the
region. While nations around the
world embrace natural gas as an
alternative, more environmentally-
friendly energy source, this option
is largely inaccessible to Central
American countries. That reality is
shifting, as Panama breaks ground
on the construction of the region’s
first LNG export terminal, the
Costa Norte LNG Terminal. In the
meantime, countries like Guatemala
lack a consistent and reliable supply
of natural gas, creating a natural
opportunity for the US.
24OH, OH, WE’RE HALF WAY THERE:
RENEWABLES & ENERGY INDEPENDENCE
PREDICTION 5
RENEWABLES
THE US RENEWABLE ENERGY Renewables accounted for 12 percent Renewable energy is a critical factor
MARKET WILL PROVIDE 20 of domestically-produced energy compelling the US toward energy
PERCENT OF THE NATION’S overall and nearly 15 percent of the independence. This milestone is
ELECTRICITY BY 2020. US’s total electricity generation twofold, referring to self-sufficiency
in 2016, and alternative energy in both electrical and oil supplies.
investments are set to accelerate. The US has already achieved partial
Central to the question of bolstering energy independence, from an
US renewables is strengthening electrical supply standpoint, which
the necessary infrastructure and relies on coal, natural gas, and
expanding the nation’s electric hydro-renewables.
grid. By 2020, renewable energy
True energy independence—
will provide 20 percent of the
eliminating US dependency on
US’s electricity.
foreign oil and gasoline—will remain
The US’s recent departure from the beyond our grasp in 2020, however.
2015 Paris Agreement changes the Oil prices are likely to remain in the
perception of the nation as a global $50 to $60 per barrel range through
leader on renewables, but investment 2020, effectively removing the
will by no means halt. Large US incentive for production in higher-
oil companies—among them BP, cost regions like oil sands in Canada
Chevron, and Total—are all invested and deep water offshore regions in
in the renewable energy space, a the Gulf of Mexico. Seventy-five
move suggesting Big Oil factors percent of US-consumed petroleum
renewables into the energy mix of was produced in the US in 2016,
the future. according to the EIA. While the US
will continue to strengthen its energy
security, the scale won’t tip to 100
percent by 2020.
CONTACT
Charles Dewhurst (Partner) +1 713 548 0855
Thomas Elder (Partner) +1 713 407 3959
25BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF OIL & GAS
IN THE KINGDOM OF SAUDI ARABIA
26SAUDISATION: THE NEW BUZZ WORD
PREDICTION 1
LOCALISATION
SAUDI ARAMCO WILL STEP The In-Kingdom Total Value Add Going forward, Saudi Aramco will pay
UP ITS DRIVE TO INCREASE Program (IKTVA) was launched close attention to IKTVA scores and,
THE USE OF LOCAL GOODS, at the end of 2015. This Saudi by 2020, the scores will become a
SERVICES, AND LABOUR, Aramco initiative aims to change deciding factor in how contracts are
REACHING 70 PERCENT the behaviour of its suppliers— awarded. We foresee other energy
with a goal to increase the use of companies following Saudi Aramco’s
LOCALISATION BY THE END
local goods, services, and labour, lead and introducing their own
OF 2020. and boost local employment and version of the IKTVA program.
exports. The program is gathering
momentum; many suppliers have
already established an IKTVA
baseline score, measured against key
metrics for local value creation, and
are already working to develop action
plans to increase their IKTVA score.
27ALTERNATIVE ENERGIES TO FUEL A
SUNNY SAUDI
PREDICTION 2
ALTERNATIVES
SAUDI ARABIA IS TAKING Renewable energy today accounts
STEPS TO REDUCE THE for less than 1 percent of the energy
DOMINANCE OF OIL produced in Saudi Arabia. That may
& GAS IN THE ENERGY be about to change as the country
SECTOR, AND WE steps up its investment in alternative
sources of energy. There is no
PREDICT INVESTMENTS
shortage of solar power to tap into,
IN ALTERNATIVE ENERGY and wind and nuclear power are also
SOURCES WILL REACH likely to enter the mix. Local energy
US$50 BILLION BY 2020. needs are growing by more than 8
percent each year, and the aim is for
alternative sources of energy to cover
this rising demand for energy, leaving
more oil for the export market.
CONTACT
Gihad Al-Amri +966 11 278 8782
28BDO’S ENERGY 2020 VISION:
THE NEAR FUTURE OF OIL & GAS
IN THE UK
29THE UK’S ENERGY FUTURE WILL BE A
SELF-SUFFICIENT ONE
PREDICTION 1
SHALE RESERVES
BY 2020, THE UK WILL HAVE For a country reliant upon imported more traditional forms of energy How much of this is recoverable
COMMERCIALISED ITS energy, the discovery of substantial production in the UK, like energy is unknown, and this is only one
SUBSTANTIAL SHALE GAS quantities of domestic shale gas has from coal-fired power stations, relatively small region. When you
RESERVES AND WILL BE provided the UK with an opportunity are unsustainable in the long term consider the potential in other areas
ENERGY SELF-SUFFICIENT. to become energy self-sufficient. if the UK is to meet its carbon of the UK and the potential for
The UK government recognises this reduction obligations. The UK’s offshore reserves, the opportunity is
potential and has offered favourable dependence on natural gas imports huge and could transform the UK’s
tax breaks to shale-gas producers can be eliminated if it embraces energy market significantly.
and initiated fast track planning shale gas production.
procedures to kickstart production.
However, there are wildly differing
Today UK energy security is in flux estimates of how much shale gas
and worryingly uncertain. Last year, there is in the UK. In 2013, the British
Prime Minister Theresa May halted Geological Survey suggested that
a deal with China and France to within the Bowland Shale of central
develop a new nuclear power facility Britain there could be between 822
at Hinkley Point. In addition, the trillion cubic feet (Tcf) and 2281 Tcf.
30THE UK: FUTURE FRACKING CAPITAL OF THE WORLD?
PREDICTION 2
FRACKING
BY 2020, THE UK WILL The UK has large potential reserves Almost half of the survey participants to individual households. However,
HAVE DEVELOPED THE of shale gas. Shale gas or oil is admitted to knowing little about these initiatives do not appear to
MOST ROBUST PLANNING, trapped within impermeable shale fracking. There remains a widely- be enough to gain majority support
LICENSING, AND rock. In contrast, conventional held belief amongst the public that from the UK populace.
OPERATING REGIME FOR natural gas deposits, such as those the UK does not need to access the
The current process for obtaining
under the North Sea, are trapped energy potential in shale to protect
FRACKING IN THE WORLD. permissions to drill for shale gas is
below impermeable rock. Therefore, its national energy security.
established, but the UK population
simply drilling down to shale gas is
To help alleviate some of the needs education on the robustness
not enough to extract it. The rock
concerns raised by the public, of the licencing process and the
must be fractured at high pressure to
the UK government proposed a process of fracking itself. Only then
get the gas or oil out. This process is
series of wealth funds to support will the UK’s planning, licencing, and
known as fracking.
local community projects in areas operating regime be world class.
The biggest barrier to fracking in the where fracking was used in shale The UK people need education and
UK is public opposition. A 2017 gas production. More recently, the knowledge to encourage the general
survey by the UK Department government announced its intention population to support fracking, and
for Business, Energy & Industrial to make the distribution of the the UK government needs to be clear
Strategy showed just 16 percent of gains from shale gas production that shale gas reserves are crucial to
people support the process of shale simpler by making direct payments the UK’s energy security.
gas extraction, down from 21 percent
in 2016 and the lowest since the
study was launched five years ago.
31THE NATIONAL GRID WILL TUMBLE
PREDICTION 3
SECURITY
THE UK NATIONAL GRID There is growing concern in the There are also a growing number Cybersecurity in the energy sector
WILL BE THE TARGET OF UK around the threat posed by of web-based devices that help us has been high on the agenda for
A MAJOR CYBERATTACK cyberattacks on power stations and control our personal technology, many of the big energy companies
BY 2020. electricity grids. The UK has already including the national roll out of for years and has been a focus of
seen the devastation and confusion smart meters to our homes and the governmental debates. It is clear
that a large-scale cyberattack can use of connected home technologies this is one area no one can afford
have on its infrastructure when to control everything from our lights to ignore and where we all must
the WannaCry ransomware attack to our heating to our home security. remain vigilant.
hit the National Health Service in
It therefore is easy to predict that
May 2017. Commentators have
determined cyber criminals could
highlighted that the danger to UK
target the UK at both a national
energy infrastructure is heightened
energy level and a localised
because of the trend away from
community, household level. The
well-protected, centralised large
implications and potential effects
power stations and towards
of such attacks are huge–they could
decentralised power, such as small,
limit or cut off hospital services,
flexible gas power plants and solar
street lighting, household heating,
panels on homes.
and communication. The list of
potential liabilities is endless.
32SMALL OPPORTUNITIES: THE
BEGINNING OF GREAT ENTERPRISES
PREDICTION 4
INVESTMENT
BY 2020, INVESTORS WILL It was an ancient Greek statesman To survive during the oil price crash,
HAVE DIVERSIFIED THEIR who said that small opportunities companies slashed their capital
INVESTMENT PORTFOLIOS are often the beginning of great expenditure programmes and sought
IN THE OIL & GAS SECTOR. enterprises. The same can be said efficiencies in every corner of their
about the oil & gas sector today. business. With rebased costs and
oil prices creeping back up slowly,
Following the dramatic fall in oil
companies are now beginning to
prices in 2014, there has been a
view new investments in resource
slow but steady recovery in prices
development as more attractive. We
to its current level of around $60
have already seen the green shoots
per barrel. Statistically, this is a
in the market place. Now that there
huge increase over the last few years
is more interest from the capital
but still falls significantly shy of
markets in projects, companies are
the high of $115 per barrel seen in
finding it (relatively) easier to raise
March 2011.
funds where the payback can be
In Drilling Down 2017, we noted demonstrated. Margins, meanwhile,
that the proceeds from secondary look more sustainable for the longer
fundraisings more than doubled in term and consolidation is seen as
2016. Other notable findings include: a positive. Investors seem to have
Alternative Investment Market learnt what “good” looks like.
(AIM) oil & gas shares outperformed These small steps will create the
the FTSE AIM 100 index and 31 opportunity for the great enterprises
companies raised an average of in the sector that are yet to come.
$21.1 million in 2016, compared to
33 companies raising an average
of $12.8 million in 2015. However,
the number of AIM-listed oil & gas
companies fell again. There are
more positives in these stats than in
recent years.
33THE UK: A BEACON FOR DIGITAL INNOVATION IN
THE GLOBAL MARKET
PREDICTION 5
DIGITAL DEVELOPMENTS
BY 2020, ROBOTS AND Oil & gas companies ruthlessly cut of the economy. By 2020, the UK The need to drive efficiency in its
OTHER TECHNOLOGIES costs and sharpened their investment oil & gas sector will have embraced mature UK Continental Shelf assets,
WILL REPLACE SOME OF THE filters to survive the low oil price a digital mindset as it seeks out leading oil services capabilities built
ENERGY LABOUR FORCE. environment. That drive for efficiency productivity gains. We have already around Aberdeen, and a thriving
now needs to focus on innovation seen tangible progress, such as technology sector in the UK, will
to create long-term productivity predictive maintenance sensor come together to deliver innovative
improvements. This is therefore the systems and AI being deployed to solutions for the global oil & gas
right time for the industry to grasp analyse historical well data and help industry. Companies that embrace
the benefits of digital innovation: select optimum drilling locations. By the change will thrive.
Companies are working off a lean 2020, innovators will be deploying
cost base with a $60bbl oil price that AI to manage drilling in real time and
offers improved margins without remove costly human error. The use
bringing the super profits that breed of predictive analytics to anticipate
complacency. equipment failure will be the norm
and robotics will have started
The use of big data, algorithms,
to replace humans for repetitive
machine learning, and artificial
tasks such as replacing damaged
intelligence (AI) are having a
equipment.
powerful impact on other sectors
CONTACT
Louise Sayers (Director) +44 (0) 20 7893 2714
Ryan Ferguson (Partner) +44 (0) 20 7893 3745
34This publication has been carefully prepared by BDO.
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Editorial: BDO Global Office, Belgium
Copyright © BDO December 2017. Brussels Worldwide Services BVBA. All rights reserved.
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