Global energy markets are undergoing wholesale structural change as the world’s oil and gas industry starts recognising the need to change over from a hydrocarbon economy to a carbon-free economy. The collapse in the oil price in 2014 has seen giant energy companies such as Total and Statoil focus on new forms of energy, including basic renewables such as solar and wind, but also green gases.
"Gas is seen by many as a bridge to that carbon-free economy," says Iain Manson, senior client partner at international executive search recruitment group Korn Ferry in London. He was visiting clients in SA this week. The oil and gas sector is confronted with the prospect of a consistently lower oil price.
"What is clear is that the global energy sector is disrupted," he says. It needs greater efficiencies and technology innovation.
"Oil and gas is a cyclical industry — so is this just a low point? The key decision that has been taken across the sector is that this [time it] is different. You cannot just wait for the oil price to go up." Manson says oil and gas majors have rationalised and cut costs and are seeking continuous efficiency improvements. "A lot of the oil and gas sector was perhaps existing inefficiently on higher oil prices. It is starting to acknowledge the hydrocarbon economy is transitioning to a carbon-free economy."
Saudi Arabia blocked calls from poorer Organization of the Petroleum Exporting Countries members in late 2014 for production cuts to halt a slide in prices. Since then, crude has traded at less than half the price of its record rise to more than $110 a barrel from 2010 to mid-2014. By January 2016 it had fallen about 73% to well below $30 a barrel.
Manson says some producers are now making a profit, but deep-water oil exploration often costs more than $50 a barrel. The cheapest is Saudi onshore output, while North Sea production and oil output from the Gulf of Mexico have been cut back, he says.
Meanwhile, the US shale oil and gas industry is now more competitive than production from the North Sea, West Africa and other deep-water drilling areas, according to global energy website Oilprice.com.
The development of big oil and gas prospects in Mozambique and Tanzania have also been curtailed.
Analysts Wood Mackenzie said in 2016 capital investment over the next five years in oil and gas in sub-Saharan Africa had been cut by $100bn. But Sasol was spending in Mozambique because it is key to its business strategy.
Ahmed Jaffer, chairman of KPMG in SA and head of its power and utilities business, says in rural Africa expanding national grids "does not make sense, hence there is a trend towards mini-grids and other off-grid solutions".
Eskom now has a surfeit of electricity production after rolling blackouts in 2008. The weakened economy has lessened demand, amid some new generation. But the utility is under fire for not signing remaining purchasing agreements with independent power producers, claiming this will negatively affect its finances. The energy world is changing fast; Eskom appears to be behind the curve.
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