With BP’s Energy Outlook 2030 predicting shale gas production to triple and tight oil production to increase by more than six-fold, DHL’s white paper, titled Building the smarter energy supply chain, states from the outset that: “This is not your father’s energy economy.”
The white paper, based on research and interviews with energy sector supply chain players, reminds investors that “contrary to conventional wisdom, which many embraced during back-to-back oil crises in the 1970s and again in 2008, oil is not running out”, quoting a Carnegie Endowment report.
“It is, instead, changing form—geographically, geologically, chemically, and economically.
The new oils are emerging along a continuum from conventional crudes to transitional oils to unconventional oils, with their classification varying according to the ease of extraction and processing,” the report stated.
DHL posited that the same held true for gas.
The booming unconventional sector dwarfs the 1-2% annual growth of the conventional energy sector, with the International Energy Agency projecting tight oil supply outside the US to reach 650,000 barrels per day, including 390,000bpd from Canada, 100,000bpd from Russia and 90,000bpd from Argentina – all by 2019.
Light, tight oil from the US, meanwhile, is forecast to roughly double from 2013 levels to 5MMbpd by 2019.
The paper noted that much of the present exploration and development of shale gas deposits in the US was not being made by the traditional oil majors, but by new players in the market who frequently have less experience executing the development of efficient supply chains, generally.
“There is a need, therefore, for major logistics service providers to develop new relationships with these new players [beyond their traditional oil and gas major client base] and to work hand in hand with them to orchestrate these operations,” the report stated.
“Failure to do so will only delay the development of optimal supply chains for these new entrants.”
As unconventional reserves are often located in undeveloped and/or remote locations, pipeline infrastructure does not exist, DHL said.
DHL energy sector president Steve Harley said midstream companies need to build gathering networks to serve the wellheads and link up with pipelines that traditionally carry oil or gas.
“Hydraulic fracturing, by its nature, requires a higher density of wells in any new operating location,” he said.
“Therefore, you have midstream companies developing the infrastructure to carry the oil and gas away.
“In the interim, as in the Bakken [Williston] Basin, for example, this means putting the oil and gas on rail.”
And, as the unconventional energy market is so new, and the supply chain support system is evolving rapidly, logistics costs are a much higher proportion of overall production costs.
“The logistics burden is immense, requiring the large scale movements of pipe, casing, water, proppant, chemicals and so on. This demands a robust logistics process to maximise drilling utilisation and team productivity. Supply chains also need to be highly flexible to meet the ever moving well-site locations,” Harley added.
Meanwhile, analysts estimate that North American unconventional oil reserves are 50% greater than total conventional reserves in the Middle East.
DHL’s vice president – energy sector EMEA (Europe, the Middle East and Africa) Jonathan Shortis said that while Africa’s energy sector has experienced massive growth of late and shows no signs of waning, the development of unconventionals elsewhere in the region – such as Morocco, Algeria and Liberia – has been limited despite substantial potential.
