Global developments in the unconventional oil and gas market, more specifically in the shale oil space, could revolutionise the world's energy markets over the next couple of decades, resulting in significantly lower oil prices, higher GDP, changing the geopolitics and shifting business models for oil and gas companies, according to a new analysis carried out by professional services firm PwC.
The report, Shale oil – the next energy revolution, examines various scenarios that consider the potential of future growth in shale oil production on global oil prices and assesses how these changes could affect the wider economy and the oil and gas industry over the period to 2035.
Chris Bredenhann, PwC Energy Leader for Southern Africa, says: "As a non-oil producing country, South Africa and South African consumers stand to benefit from the anticipated lower oil prices contained in the study. As a significant refining country on the African continent, lower crude oil prices may benefit local refiners.
"However, proposed new refineries in the region, particularly the Mthombo refinery of PetroSA will have to consider their oil feedstock supply sources and proposed refinery configuration. The PetroSA refinery is designed for heavy sour crude, while shale oil is synthetic oil with different properties requiring different refinery configuration."
John Hawksworth, chief economist at PwC and co-author of the report says: "Lower global oil prices due to increased shale oil supply could have a major effect on the future evolution of the world economy by allowing more output to be produced at the same cost. These effects could build up gradually as shale oil production rolls out across the world to produce an estimated rise in global GDP of around 2.3%-3.7% in 2035. This would be roughly equivalent to adding an economy the size of the UK to total global GDP in that year.
"However, the economic benefits of oil price reductions will vary significantly by country. Large net oil importers such as India and Japan may see their GDP boosted by around 4%-7% by 2035 in our alternative scenarios, while the US, China, Germany and the UK might gain by around 2%-5% of GDP.
"By contrast, major oil exporters such as Russia and the Middle East could be significant net losers in the long term unless they can develop their own shale oil resources on a large scale."
Lower oil prices may also have a negative impact on renewable energy plans. Bredenhann says that the financial investment for renewables becomes relatively less attractive under a lower oil price scenario. Governments will have important choices to make to balance the potentially conflicting objectives of energy affordability and decarbonisation.
Bredenhann says that shale oil developments will have an impact on emerging oil and gas territories. "Interest in Namibia may see it potentially emerging as a new oil and gas province, but their potential lies in deep water, with its own challenges and cost structure. Cheaper oil from other locations may cause investors to re-evaluate their options."
Furthermore, governments and policy makers in East Africa (Tanzania and Mozambique) will have to carefully and urgently develop policies that support the investment climate to ensure that their gas potential is realised, he adds.
There is very little known about the shale oil potential of South Africa, and further studies would need to be carried out to determine if there are commercially viable reserves in Southern Africa. If there are commercially viable reserves, undoubtedly there will be a new debate on the environmental effect on the extraction of shale oil, with similar environmental concerns as is the case for shale gas. The extraction of shale oil requires heat and mining activities, explains Bredenhann.
The study also looks at the opportunities and challenges for stakeholders in the energy industry, including:
Governments in current net oil importing countries with potential shale oil resources will need to understand the likely economic payback from creating policies to encourage the exploitation of shale oil, balancing these against alternative local and national environmental objectives (decarbonisation).
Governments in countries reliant on conventional oil exports will need to adjust to lower revenue flows in the long run and/or develop their own unconventional resources, including shale oil and gas.
Oil companies will have to reassess their current portfolios and planned projects against lower oil price scenarios, while also adjusting their business models to fit the lower-scale but more standardised production process that is required for shale oil.
Lower than expected future real oil prices could also create long term benefits for companies that rely heavily on oil and related products (for example, petrochemicals and plastics, airlines, road haulers, automotive companies, and the LNG sector given that its prices are often linked to oil).