Two and a half years ago, analysts asked when Italy’s Eni would be able to start producing gas from the giant Zohr field offshore Egypt. The overwhelming majority said this would happen no earlier than 2019, and most likely after 2021. But first gas from Zohr flowed earlier this month, in the latest sign that the future of the oil and gas industry will be very different from its past.
Big Oil has traditionally taken its time with new projects, especially offshore ones. They require a lot of exploration, a lot of planning, and a lot of equipment once the final investment decision has been made. But no longer: the 2014 crisis really changed the setting, forcing the mammoths of the industry to at least try to become more nimble and flexible.
The Italian major is not the only one speeding things up, but it is to date the most glowing example of what Bloomberg’s Chiara Albanese and Javier Blas called a seismic shift. To grasp the full significance of the Zohr feat, here’s a little history.
Zohr was first auctioned back in 2012, but the discovery of the huge deposit of gas was only made in 2015: the Mediterranean is not the most productive place when it comes to oil and gas discoveries, so Zohr really shook things up with reserves that Eni has estimated at 850 billion cubic meters of natural gas, or about 30 trillion cubic feet.
From the discovery onwards, Eni took advantage of cutting-edge tech to actually work in parallel on the further exploration of the field and its initial development. It did 3D modeling of the deposit at the same time as the design of the engineering tech needed to develop these reserves and procurement. The goal was to save time and money, of course, and many believed this was mission impossible. Related: Oil Market Will Rebalance By March: Iraqi Minister
The feat will go down in history as yet one more mission considered impossible and made possible by a number of factors, including technology, a new emphasis on cost savings, and the awareness that in a world turning increasingly to natural gas from oil every day is precious and should not be wasted if you want to position your company ahead of the competition.
Eni’s Claudio Descalzi had every right to be a little bit smug when he said, “Nobody believed what we were going to do, analysts said we were crazy; now we can say they were wrong and we were right.” The secret: “Our philosophy is time to market. We changed all the industry strategy by breaking the contractual schemes and starting to move from investment authorization to production with parallel steps."
The philosophy of accelerating the time to market is neither new nor reserved for just the energy industry. In fact, it is becoming increasingly popular across industries, but that doesn’t diminish its potentially transformative impact on oil and gas given the history of that particular industry.
And yet, it’s not just about a business philosophy. Eni admits that it made the best use of lower oil prices, which significantly reduced its building costs. It is also true that drilling in the Mediterranean is much easier than, say, the Arctic or the deep waters of the Gulf of Mexico or Brazil. And yet, were it not for the new approach to exploration and development, these favorable circumstances would hardly have been enough for Eni to prove that mission impossible was possible. It will only be a matter of time until we start seeing this approach replicated by the Italian company’s peers. After all, there is little chance that competition in the oil and gas market will cool in the future.
By Irina Slav for Oilprice.com
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The facts are, as this article proves, that technology has changed the industry. Oil & gas are no longer scarce, they are more and more plentiful. We largely knew that in the past, but it was so expensive to get the oil & gas it might as well not have been there. No longer. The cost keep coming down and the time to get production to market is now in months, NOT years or decades. Everyone, OPEC and the IEA are underestimating how fast $60 a barrel oil will ramp up production in the USA and how fast that production will come to market. And its not just the USA. Other countries like Egypt have supplies coming online and at a record pace. OPEC/Russia are stuck in the past, as is the entire industry. However, this period of $60 plus oil is great for the USA. It justifies the continue investments to produce more shale oil and gas, and to keep driving the cost of production and time to market down. Let's hope that OPEC/Russia keep idling more capacity to keep the price of oil high so the boom in jobs, and production in the USA continues for as long as possible. The USA is more balanced than ever before. $60 a barrel oil provides the USA with the jobs, production, and profit that help drive the overall economy, without hammering the rest of the economy which is more efficient and can easily handle $60 a barrel oil. When the glut can no longer be ignored the oil sector will take a hit, but that will be offset by the beneficial effect of lower prices across the board. The USA is set to benefit from both high and low oil prices, and $60 a barrel oil helps across the board. OPEC is over, but fortunately they don't know it yet.