Jokers are wild

E&P Plans? Variables Are Being Dealt

American Association of Petroleum Geologists (AAPG)

What kind of hand will fate deal the energy industry during the remainder of the 21st century?

Amy Myers Jaffe
Amy Myers Jaffe

Amy Myers Jaffe sees wild cards.

Lots of wild cards, for the Gulf of Mexico and the oil and gas industry around the world.

Jaffe is a fellow in Energy Studies and director of the Energy Forum at the Baker Institute for Public Policy at Rice University in Houston, and serves as associate director of the Rice Energy Program.

She also teaches two courses at Rice, and she’s a widely followed energy analyst, commentator and speaker on energy issues.

That’s a big reason why she will take part in a panel discussion, “A Glimpse into the 21st Century Energy, Economy, Environment and Policy,” set for the upcoming Gulf Coast Association of Geological Societies’ annual meeting in Austin, Texas.

The outlook for the industry in the Gulf of Mexico and elsewhere will be affected by a number of variables, where outcomes are difficult to predict, Jaffe said.

Her top three:

  1. The future of the Middle East and the high degree of geopolitical uncertainty associated with that region.
  2. The way the world approaches the issues of environmentalism and sustainability, and how that affects the oil and gas industry.
  3. The global extent and impact of the shift toward unconventional resources.

She cites geopolitics, especially, as having the power to alter the world’s energy picture, disrupt oil supplies and scuttle international exploration plans.

You can analyze a play area, understand the economics, choose the right technology, create an effective plan for development “and you can be completely incorrect, on the basis of geopolitics,” she noted.

Random events also can re-stack the deck, at any moment.

As an example, Jaffe cited the Japanese tsunami in March 2011, the subsequent Fukushima nuclear disaster and Japan’s resultant aversion to nuclear energy operations.

“Fukushima dramatically changed the outlook for the LNG market for the next two years,” she said.

How much LNG demand will increase in a shift away from nuclear power, in Japan and elsewhere, can have a significant effect on the future of energy demand.

“You can’t analyze the LNG market,” she said, “if you can’t analyze what energy sources the Japanese people will want 20 years from now.”

Flipping the Cards

Jaffe also identified fuel conversion and information digitization as trends that will affect the oil and gas industry in the coming decades.

“We’re going to see a lot of change in the industry in terms of conversion – conversion of one fuel into another, conversion of fuels into electricity for transportation,” she said.

And digitization and cyber security will be prominent concerns for the industry, Jaffe noted, citing recent cyber attacks in the Middle East. As oil and gas operators transmit digital information, they will have to protect it from competitors and others, she said.

“Then you have the flip side of that, which is the smart grid, which is very enabling technology,” she added.

But in the world of wild cards, even the flip side has a flip side.

When utilities can control household electrical use for maximum energy efficiency, “I have to be sure that a hostile government can’t do that, just to leave me in a blackout,” she said.

One thing Jaffe believes might not make a huge difference in the global outlook is the U.S. presidential election in November.

“I’m not sure it’s as significant as people see it,” she said.

Despite the candidates’ differing positions on climate change, she thinks perceptions of environmentalism and sustainability are related more to age groups than to politics.

“I do believe,” she said, “the trend in environmental policy and the trend toward seeing climate as a variable is a generational one.”

Ask the Experts

At Rice University, Jaffe teaches a course in sustainable development, as well as one on energy policy. She said her own degree is in Arabic and Middle Eastern history.

“In my first job, before I wrote about oil, I actually wrote about Arab finance,” she said.

Jaffe said she has helped develop models of the international oil and gas industry “that involve more than just what’s under the ground.”

“I tend to look at the intangible issues closely,” she explained.

At the GCAGS meeting, Jaffe will be joined on the discussion panel by:

♦ Tadeusz Patzek, professor and chair of the Department of Petroleum and Geosystems Engineering, University of Texas-Austin.

♦ Scott Anderson, senior policy adviser to the Air and Climate Program of the Environmental Defense Fund, Austin.

♦ Ken Medlock, adjunct professor of Economics, Baker Institute for Public Policy, Houston.

♦ James H. Painter, executive vice president-Exploration and Technology, Cobalt International Energy, Austin.

The panel moderator will be past AAPG president Scott Tinker, Texas state geologist and director of the Bureau of Economic Geology, Austin.

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