Traditional oil and gas operations

30

20

10

Note: EHOB = extra-heavy oil and bitumen.

Unconventional gas

Conventional gas

Tight oil

EHOB

EOR

Deepwater

Offshore Onshore oil

While both oil and natural gas demand peak in the SDS, both fuels continue to play a major role in the global energy mix for decades to come. In 2040, oil and natural gas still satisfy just under half of global energy demand in this scenario. As discussed in the previous section, the level of new oil and gas resources required remains significant, largely due to declining output from existing fields. But companies also face choices as to the types of resources that are considered for development in this Scenario:

•Lower-cost resources will naturally be favoured, regardless of the demand outlook. This suggests that the large resource holders, such as those in the Middle East and Russia, and companies that can keep a tight control on extraction costs could capture a greater share of the market. Efficiency and cost discipline are the watchwords. However, the profile and characteristics of oil and gas demand in the SDS suggest that the direct costs of extraction are not the only consideration.

•Natural gas fares better than oil in most energy transition outlooks, including the SDS. The profitability of gas supply is often more challenging than oil, but in recent years many companies have sought to increase the level of natural gas in their project portfolio. This is partly because of the greater number of development opportunities for natural gas, but is also a response to the better prospects for gas demand.

•Lighter crude oils and natural gas liquids are better suited to the demand environment of the SDS, and reduce the need for intensive refining.

•Among existing projects, a search for additional low-cost barrels. Some of the cheapest additional barrels, especially among established producers, are those available at existing producing

126 | The Oil and Gas Industry in Energy Transitions | IEA 2020. All rights reserved

fields or at satellite fields. Technologies and approaches that maximise recovery are likely to be favoured, especially if they have co-benefits for environmental performance, as with the use of CO2 for EOR.

•Among new projects, a preference for shorter payback periods. An uncertain demand environment increases the implied discount rate for new projects, which penalises very capitalintensive investments and favours opportunities with shorter lead times between approval and first production. Shale investments fall into this category, and larger conventional projects (onshore and offshore) may increasingly be separated into multiple distinct phases for the same reason.

•Among all projects, a focus on bringing down the emissions intensities along the value chain. The emissions intensity of production is a function both of the natural complexity of the resource and of above-ground development and operational choices. Oil and natural gas with lower emissions intensities will be better positioned than higher-emitting sources, and would likely be increasingly preferred for development. Actions to reduce emissions from oil and gas operations include:

i.minimising flaring

ii.tackling methane emissions

iii.integrating renewables and low-carbon electricity into new upstream and LNG developments.