According to Ryan Lance, chairman and CEO of ConocoPhillips, oil and gas industry leaders are responsible for fulfilling "a triple mandate" regarding the future of the industry.
"One is to meet the energy demand, whatever that's going to look like over the next number of years," he said. "You need to develop the lowest cost of supply barrels filling that demand as you possibly can. The volatility is going to be here to stay. That's what COVID-19 has taught us, and what we've seen over the past 18 months. It's not going away, so having that lowcost supply resource is going to be pretty important."
Second, Lance said, demand must be met sustainably.
"Each of our companies has to take care of our scope one and scope two projects and the emissions we create as a business," he said at the 23rd World Petroleum Congress. "We have to have a sustainable path to reduce those in a Paris-aligned climate strategy framework. That's going to be important."
Third, investing will be key, he said.
"This industry has been mostly inadequate in terms of the returns back to the investors," Lance said. "It is about capital returns on the money you're spending in the business. It's about the return of capital to your investors. That has changed and changed for the better."
Specifically addressing the role oil and gas needs to play in the energy system for the foreseeable future as commodity prices rise, Lance reported that he has observed "a sense of demand stagnation" because of the energy transition.
"There's this big uncertainty about what the demand trajectory is going to look like for this business, and that's creating some uncertainty in the business and, as we all know, uncertainty leads to reduced capital investment," he said. "It's creating a short-term supply issue, and people don't understand what the demand trajectory is going to look like. I fear that it's going to stagnate and start going down pretty rapidly."
Lance added that growth at the expense of returns will no longer be acceptable.
"I think this is the right perspective to be taking," he said. "Again, it goes back to the return on capital in this business. The fact is that our business over the past decade has produced dismal returns. In fact, over the past five years in the exploration and production space, which I'm in, it's been zero. Zero return on capital."
Lance said the combination of those three concepts is setting up an environment that will not only be constructive, but also "incredibly evolved."
Efficiency, efficiency, efficiency
"For our industry, it's all about efficiency," Lance said, recalling that when he first started in this business 35 years ago, some of his early mentors encouraged him to "follow the growth, and follow the capital," because that's where he would find the most excitement.
However, as more attention is being paid to reducing emissions and the collective carbon footprint, the more predominant mantras are becoming: "How can we do more with less? How can we get more efficient?"
"That's where the data analytics and digital technologies come in," Lance said. "We have one of the largest computers in the world. Five of the top 10 largest computers in the world are in the oil and gas industry today. This is an important piece of what we're doing."
The bottom line, Lance said, is about driving efficiency.
"It's about learning how to fracture stimulate those wells better and how to instrument the drill stream and get quicker penetration," he said. "And then, when you get it to the surface, how do you monitor and track methane emissions?"
The emerging analytics, data and technology transition is going to be huge for the energy industry, Lance concluded.
