The energy transition represents $14 trillion worth of uncertainty for upstream oil and gas, according to a new report by Wood Mackenzie.
Oil demand may continue to grow for another decade or more. On the other hand, if the world acts decisively to limit global warming to 2 Degree Celsius by 2050 oil demand and prices would fall rapidly later this decade.
Wood Mackenzie estimates the range of pre-tax future valuations for upstream is a staggering $14 trillion – from $9 trillion to $23 trillion. On a post-tax basis, operators’ share of this economic rent ranges from $3 trillion to $9 trillion.
“The industry now finds itself having to supply oil and gas to a world in which future demand – and price – are highly uncertain. The range of possible outcomes is dizzying. But the world will still need oil and gas supply for decades to come, and the scale of the industry will remain enormous,” WoodMac vice president Fraser McKay said.
Delivery and discipline are paramount in all aspects of the upstream value chain as the macro environment for oil and gas gets tougher. Performance against budgets and timelines has improved dramatically since the last downturn, the report said.
The industry needs to remain relentless in its push to improve efficiency, drive down costs and deliver projects flawlessly. Oil and gas companies need to send a strong signal to stakeholders that they can be reliable stewards of capital.