Why Explorers Are Not Targeting More Natural Gas On The Way To Hydrogen -- Westwood -- March 18, 2021

For newbies: scope 1, 2, and 3 emissions. 

From Westwood: why explorers are not targeting more gas in response to the "Energy Transition."

There has been much talk about natural gas as a transition fuel, primarily in helping to lower emissions and pollution by displacing coal in power generation, but also in complementing intermittent renewables, and targeting the (blue) hydrogen economy in the longer term. Forecasters of energy demand, such as the IEA, tend to project gas demand holding up for longer than oil, and a number of E&P companies include natural gas as a core part of their energy transition and net-zero emissions strategies. Is there any evidence that explorers are now targeting more gas in exploration?

Not yet.  In fact, 2021 is expected to see the lowest proportion of high impact exploration wells targeting gas in more than a decade.

Overall, 32% of high-impact wells targeted gas prospects in 2011-2019. The highest proportion was  in 2019 when ~45% of high impact wells targetted gas. This was due to  drilling campaigns by BHP in deepwater Trinidad, BP in MSGBC and Exxon/Eni in the Eastern Mediterranean. There were also slight increases in 2014 and 2015 as East Africa was drilled out, however, oil has remained the primary target throughout the period accounting for two thirds of high impact exploration wells.

Reasons provided by Westwood:

So why is gas exploration not proving more popular during the energy transition?

Firstly, most of the world’s E&P companies have not yet committed to reducing their scope 3 emissions, and are therefore not specifically targeting natural gas exploration as part of an energy transition strategy. The focus is still on near term targets of reducing Scope 1 and 2 (operational) emissions to maintain a licence to operate.

Secondly, more than 60% of the discovered resource in 2012-2020 was gas, even though ~70% of high-impact wells were targeting oil. 

This was due to a number of giant gas discoveries, as well as the industry discovering gas in plays where oil was the primary target.

In fact, the industry has already found more natural gas than it needs or can commercialise in current market conditions. 

~36bnboe of gas discovered 2008-2016 remains in the ground with no current plans for development (see Westwood’s ‘Stalled Resources’ insight in October 2020). The exploration for gas that is happening now is focused on plays where the route to market is clearer, but big gas prospects with access to an attractive gas market that can be commercialized quickly are hard to find.

Until this equation changes explorers will still tend to favour oil.