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Energy, Oil & Gas, and Utilities OVERVIEW

There is a broad, global focus today on energy as an economic, geopolitical and strategic resource.
     In addition, there is an intense interest in the environmental consequences of energy consumption, as well as a steady push toward adoption of energy conservation technologies and practices.
     Much of the world's energy is generated by petroleum-based fuels (gasoline and diesel—particularly in transportation) and natural gas (particularly in electric power generation and industrial purposes).
     However, many other energy sources are in wide global use, from biomass to hydroelectric, to wind and solar electricity generation.
     Nuclear power plants also provide much of the world's electricity, as does coal. Advanced oil and gas production technologies, including 3D seismic, ultra-deep ocean rigs, hydraulic fracturing and directional drilling, have fostered exceptional new levels of oil and gas discovery and production around the world.
     In fact, the application of new technologies has dramatically upset the former balance of power in the energy industry, making North American production much more important while lessening the influence of OPEC.
     In recent years, a flood of production released by these technologies has led to a stunning drop in market prices for crude oil and natural gas, much to the financial detriment of the very companies that funded and enabled these technological breakthroughs. In addition, there is a greater focus than ever before on the potential impact of energy production and consumption

¹ Video Tip

For our brief video introduction to the Energy & Utilities industry, see www.plunkettresearch.com/video/energy.

Advanced oil and gas production technologies, including 3D seismic, ultra-deep ocean rigs, hydraulic fracturing and directional drilling, have fostered exceptional new levels of oil and gas discovery and production around the world. In fact, the application of new technologies has dramatically upset the former balance of power in the energy industry, making North American production much more important while lessening the influence of OPEC. In recent years, a flood of production released by these technologies has led to a stunning drop in market prices for crude oil and natural gas, much to the financial detriment of the very companies that funded and enabled these technological breakthroughs.

In addition, there is a greater focus than ever before on the potential impact of energy production and consumption on public health, air quality, water quality and other environmental impacts. A large number of nations have stated very ambitious goals to reduce consumption of fossil fuels. Worldwide, investment in the development and implementation of cleaner or renewable energy sources is a major priority for many governments and industries. This emphasis varies widely from nation to nation, ranging from cleaner ways to burn the world’s immense stores of coal; to the construction of advanced-technology nuclear generating plants that are exponentially safer than older models; to the use of renewable technologies based on solar, wind and wave power.

With the exception of hydroelectric power, renewable energy sources were initially much more expensive as an electricity resource than fossil fuel-based electricity generation (primarily coal and natural gas). This meant that renewables required significant government subsidies, loan guarantees or incentives in order to encourage investment. Today, however, onshore wind power as well as solar power have become dramatically more cost-efficient. In some instances, solar has become reasonably competitive on price, compared to other forms of generation. It remains to be seen whether or not governments will cut back significantly on their costly subsidies and incentives for renewables.

The largest emerging nations are investing heavily in alternative energy sources, while continuing to use massive quantities of fossil fuels. China continues to face a serious environmental challenge due to the immense amount of coal it burns. India likewise remains dependent on electric generation from coal. Brazil, in contrast, continues to be a leader in the low-cost production and use of ethanol as a transportation fuel, while it is slowly developing some of the world’s most important offshore oil and gas fields. It is also a world leader in hydroelectric power.

Today’s relatively low market prices for oil and natural gas have caused oil companies, large and small, to strive for lower exploration and operating costs, while accelerating the adoption of efficient new techniques and technologies.

The world’s energy supply will remain abundant for the foreseeable future. Better science, technology and engineering are being applied to exploration, production, conservation and distribution alike, with stunning success. At the same time, total energy usage in mature economies is on a path of decline or slow growth. For example, analysts at BP estimate that annual American consumption of primary energy sources (such as coal, natural gas and crude oil) declined by more than 3% in the 10-year period from 2007 to 2017. In the booming economy of China, however, the same measure increased by 46%, while the increase was 67% in India, over the same time period.

For the mid-term at least, merging economies will continue to burn huge amounts of coal and other fossil fuels while total energy usage continues to soar. This is where the growth in consumption, along with related emissions and pollution, is largely unavoidable for the near future: in rapidly rising economies that are adopting modern industrialization, transportation (including tens of millions of new automobiles yearly), business services and housing, along with the energy consumption that such development demands.

A looming question is whether America and major nations in Europe will ever resume significant construction of nuclear generation plants. The fact that several nuclear plants were damaged by a massive tsunami at Fukushima, Japan in early 2011 makes significant new development of nuclear sites even more controversial. Meanwhile, advanced-generation nuclear technologies (including small, modular reactors) have the potential to provide much greater operating efficiencies with vastly increased safety over the plants constructed in earlier years, and the nations of the UK, China, India, Saudi Arabia and the UAE have indicated strong interest in new nuclear plant construction—with several new plants under way in China. Nonetheless, on a global basis, construction cost overruns continue to plague the nuclear plant sector.

Global Energy Numbers:

Oil: According to the latest data available from analysts at energy giant BP, the world produced 95.2 million barrels of oil daily in 2019, up 0.5% from the previous year (these are the latest available numbers). This includes unconventional petroleum output from such sources as oil sands, as well as natural gas liquids. However, it does not include alternative sources such as oil from biomass and coal derivatives. Proven reserves worldwide totaled 1,733.9 trillion barrels at the end of 2019, up 0.2% from the previous year.

Natural Gas: According to BP, global production of natural gas was 3,989.3 billion cubic meters in 2019, up 3.1% from the previous year. Proven reserves totaled 198.8 trillion cubic meters, enough to last several decades at today’s consumption rates. Massive discoveries of natural gas in shale formations in the U.S. and elsewhere have largely altered the gas industry while leading to great reductions in market prices for gas over the past several years. Likewise, vast investments in LNG (liquefied natural gas) infrastructure are enabling international shipment of gas from production areas, such as Qatar and offshore Australia, to major markets in China, Europe and elsewhere.

Coal: Analysts at BP estimate that global production of coal was 4,002.5 million tons of oil equivalents in 2019, up 1.5% from the previous year. The largest emerging nations are hooked on coal, with China accounting for about one-half of global consumption. As of 2019, global coal reserves were massive at 1,069,636 million tons of oil equivalent, or enough to last about 250 years at today’s consumption rates.

America’s Energy Numbers:

According to the U.S. Energy Information Administration, natural gas production in the U.S. increased by 9.9%, to 40,704 billion cubic feet in 2019, the latest year available.

The Department of Energy estimates American oil production was 12,248 thousand barrels per day during 2019, up dramatically from 10,990 thousand barrels per day in 2018. (These numbers do not include natural gas liquids.) A long-term trend of rising domestic production has led to dramatic cuts in America's oil imports, as well as a growing level of oil exports from the U.S. Consultants at Rystad Energy estimated in 2020 that the U.S. ranks second in total reserves of oil, at 244 billion barrels, succeeded by 299 billion in Saudi Arabia. (Rystad bases reserves on “existing fields, contingent resources and prospective resources.”

America’s natural gas industry has been growing very quickly, and new production has ensued, thanks largely to wells in shale. Thus, the total production picture of both oil and gas has improved dramatically, and look even better when natural gas liquids, or oil that is stripped from natural gas during processing, are included.

Meanwhile, the sources of America’s oil imports have changed as well. Thanks to booming output in areas outside of the Persian Gulf, including Canada and the West Coast of Africa, America’s reliance on OPEC and Middle Eastern nations for oil has plummeted. As of 2018, America received less than 29% of its oil imports from all OPEC members, down from 70% in 1977.

Only 135 refineries existed in America as of early 2019, down by more than 50% from 1980. However, these remaining refineries have invested heavily in additional capacity to the extent that their total, combined refining output has grown, despite the fall in the number of refineries. America’s substantial new oil and gas production, combined with the expansion of existing refiners, made the U.S. a net exporter of refined petroleum products, starting in 2011, the first time since 1949.

Total American consumption of energy of all types was 100.31 quadrillion BTUs in 2019. In terms of BTUs consumed per year per capita, American energy use is in a slow, long-term decline. This is remarkable when you consider that the number of automobiles and aircraft per capita has grown dramatically, along with the percentage of homes and buildings that are air conditioned, and tremendous increases in the number of appliances, computers and entertainment devices per person. Thanks to immense leaps in engineering, technology and conservation, energy efficiency has grown to the extent that the energy consumption of an average American declined from a peak in 2000 of 351 million BTUs yearly, to only 306 million in 2019.

According to the U.S. Department of Energy, electric generation in America as of 2019 used the following ratio of fuels: coal 25.7%; nuclear 19.45%; natural gas 37%; hydroelectric 39.9%; and non-hydro renewables such wind and solar, 9.62%.

Consumers and businesses alike are increasingly willing to invest more in the initial cost of green buildings, high-efficiency appliances and energy-saving transportation equipment, with the promise of lower energy costs for daily operation. The automobile industry has responded with lighter, much more fuel-efficient vehicles. Even pickup trucks, which remain extremely popular with American drivers, use much less fuel than they did in the recent past.