CHAPTER 1: INTRODUCTION AND BACKGROUND TO THE OIL AND GAS INDUSTRY 4
In this section, we broadly discuss the following background concepts to the oil and gas industry: 1.1 Introduction to Oil and Gas hydrocarbon system elements and the formation of oil and gas; exploration, development and production activities including the types of drilling shale gas basics 1.2 Sector organisation 1.3 Market and Pricing 1.4 Oil and Gas in Africa History and overview Future developments
CHAPTER 2: OIL AND GAS PROCESS AND KEY CONCEPTS 3
CHAPTER 3: LEGAL FRAMEWORK 3
OIL VS GAS – TECHNICAL EXPLANATION
World Energy Consumption – Fuel
It is important to understand the current state, the technological developments in respect of both the supply and demand patterns in the world energy supply chain what is going on in terms of energy consumption in the world. The graph below shows the world total primary energy consumption by fuel types from 1992-2017. World primary energy consumption grew by 2.2% in 2017, up from 1.2% in 2016 and the highest since 2013. All fuels except coal and hydroelectricity grew at above-average rates. Natural gas provided the largest increment to energy consumption at 83 million tonnes of oil equivalent (mtoe), followed by renewable power (69 mtoe) and oil (65 mtoe).
In Africa, there has been an increased focus on accessibility, affordability and sustainability of energy. However, to continue improving universal access to electricity, most countries’ electricity transmission and distribution grids need to be strengthened, which is a costly and time-consuming process. While it is important that Governments continue investing in their electricity grids in the long term, this challenge has created an opportunity for the growth of distributed generation on the continent. Distributed generation involves the generation of electricity at or near where it will be used. Africa has seen the development of micro-grids and solar home system solutions increase significantly to address the lack of access to electricity.
Oil – What is it?
Conventional oil wells are vertical shafts which flow into pools of oil and gas that are under pressure, making them easy to bring to the surface. Unconventional oil sources do not flow near the surface and sometimes do not flow at all when they are formed in a solid or near solid state. Unconventional oil sources remain relatively untapped compared to conventional oil sources; this is largely due to technical requirements and costs associated with their production. Types of unconventional oil include oil sands, oil shale, shale oil, tight oil, and heavy and extra-heavy oil.
The typical composition of oil:
|Hydrocarbons||90 – 98%|
|Nitrogen & Oxygen||0.2 – 3.5%|
|Sulphur||0.5 – 6%|
Grades of Crude Oil
Crude oil is typically categorized based on two major quality characteristics: (i) density and (ii) sulphur content. Density ranges from light (low density, higher API (American Petroleum Institute) gravity) to heavy (high density, lower API gravity), while sulphur content in comparison ranges from sweet (low sulphur) to sour (high sulphur). Examples of the different grades of crude oil are illustrated in the graph below.
Light and sweet crude oil are generally priced higher than heavy and sour crude oils in the market, for the following reasons:
- The less processing or refining a crude oil undergoes, the more valuable it is considered and so products derived from crude oil sell at a higher premium (e.g. gasoline and diesel fuel) than other products, where products are more easily and cheaply produced using light, sweet crude oil (less processing and refining is required).
- Light, sweet grades can be processed with far less sophisticated and energy-intensive processes/refineries. A high sulphur content makes it more difficult to process and provides poor end-quality products.
There are four major types of crude oil, categorized by density:
- Very Light Oils (Light Distillates): these are highly volatile and can evaporate, some examples include Jet Fuel, Gasoline, Kerosene.
- Light Oils (Middle Distillates): these are moderately volatile, less evaporative than very light oils, most Grade 1 and 2 Fuel Oils and Diesel Fuel Oils are categorized as light oils.
- Medium Oils: these have low volatility (which makes for more complex clean ups). Most of the crude oil in the market falls into this category.
- Heavy Fuel Oils: it has very low volatility; and there is little evaporation. However, there is a risk of severe contamination for fish, fowl and fur-bearing creatures as well as long-term contamination of water and soil. Heavy oils such as bitumen, which is found in tar sands, fall into this class.
There are a number of uses for oil, such as clothing; parachutes; pantyhose; motorcycle helmets; safety class; toilet seats; golf balls; hand lotion; fishing rods; luggage; toothbrushes; shampoo; rubbing alcohol; balloons; glue; hearing aids; antiseptics; dishwashing liquid and carpets. [Note: ALSF to consider representing this in a graph]
Top Oil Producing Countries
|1||Saudi Arabia – 11.75 million barrels per day|
|2||United States – 10.59 million barrels per day|
|3||Russia – 10.3 million barrels per day|
|4||China – 4.19 million barrels per day|
|5||Iran – 4.13 million barrels per day|
|6||Canada – 3.92 million barrels per day|
|7||United Arab Emirates – 3.23 million barrels per day|
|8||Mexico – 2.95 million barrels per day|
|9||Brazil – 2.8 million barrels per day|
|10||Kuwait – 2.75 million barrels per day|
According to current estimates, 81.89% of the world’s proven oil reserves are located within OPEC (Organization of the Petroleum Exporting Countries) Member Countries (currently 16 oil-exporting developing nations as seen on the graph), with the bulk of OPEC oil reserves in the Middle East, amounting to 65.36% of the OPEC total.
OPEC Member Countries have made significant additions to their oil reserves in recent years, for example, by adopting best practices in the industry, realizing intensive explorations and enhanced recoveries. As a result, OPEC’s proven oil reserves currently stand at 1,214.21 billion barrels.
It is important to note from an African perspective, that The Republic of the Congo became a Full Member of OPEC on 22 June 2018.
What is gas
There are different types of gas:
- Associated gas: natural gas found in association with oil within a reservoir. This gas can be burnt off in gas flares or processed.
- Non-associated gas: this is where reservoirs contain only natural gas and no oil.
- Rich gas: natural gas containing heavier hydrocarbons than a lean gas e.g. higher concentrations of propane and butane. Its liquid content adds important economic value to developments containing this type of fluid.
- Natural gas liquids: components of natural gas that are separated from the gas state in the form of liquids. This separation occurs in a field facility or in a gas processing plant through absorption, condensation or other method. Natural gas liquids are classified based on their vapour pressure:
- Low = condensate
- Intermediate = natural gas
- High = liquefied petroleum gas – this is propane or butane
The typical composition of gas:
There are a number of uses for gas including, heat; power generation; transportation; fertilizers; plastics; adhesives; solvents; chemicals and fabrics such as polyester and nylon.
Comparison of Oil and Gas – Commerciality
· worldwide market (ocean freight by tanker)
|· largely internal or regional markets (pipeline/LNG exceptions)|
|· low cost storage (concrete bunkers/steel tanks)||· high cost of storage (salt caverns, depleted fields, LNG)|
|· easily transported (pipelines, road, rail, sea tankers)||· high cost/restricted transportation (pipelines/LNG)|
|· liquid market enhances free trade||· gas pipelines 12 x cost of oil pipelines for same energy content|
|· financing relatively easy||· financing difficult without long term take or pay contracts|
|· interruptions to flow not a problem (availability of supply)||· interruptions to flow a major problem – difficulties/costs of alternative supply|
|· high value in a compact package||
· lower value product with physical and regulatory constraints
From a commercial perspective, oil has historically been regarded more favorably and commercially more attractive than gas. This is mainly because it can be transported worldwide easily and has associated low storage costs.
In contrast, gas is generally restricted to internal markets due to the costs of storage and transportation, where the gas market relies on costly infrastructure and often is traded via long-term contracts often including fixed source and destination provisions. For example, only 30% of the gas consumed in the world crosses a border; the equivalent for oil is over 70%.
Gas overtaking oil?
Recently the global market has experienced a move towards gas as opposed to the historically favored oil. This shift is largely due to the move towards a diversity in energy mix, market demand, technological and transport developments and environmental considerations arising from climate change concerns.
BP (the British multinational oil and gas company) speculates that gas is set to overtake oil as the world’s primary energy source by around 2040 as demand for the least polluting fossil fuel grows. Further BP expects overall gas demand to grow around 1.6 % a year for years to come, compared with 0.8 % for oil.
Conventional onshore and offshore gas production are forecasted to decline from about 2030, while unconventional onshore gas is expected to rise to a peak in 2040. The international accredited registrar and classification society, DNV GL expects this trend to lead to leaner, more agile gas developments with shorter lifespans.
An increase in trade from Sub-Saharan Africa to the Indian Subcontinent and South East Asia is also expected. DNV GL forecasts a further transition for the sector in the lead-up to 2050, as greener gases including biogas, syngas and hydrogen enter transmission and distribution systems.
LNG trade is expanding rapidly which connects disparate markets, and importing LNG has become simpler and cheaper.