HORIZONS

Energy super basins:

Where the renewable, CCS and upstream stars align

July 2022

Andrew Latham, Vice President, Energy Research Julie Wilson, Research Director, Global Exploration Brian Gaylord, Senior Research Analyst, Power and Renewables

Traditional super basins supply most of the world’s oil and gas

Get this insight as a PDF

Conclusion: The big upstream players must act now

The world’s need for sustainable energy is set to change the geography of the oil and gas industry, entwining it with renewables. The financial success of oil and gas companies will depend on their ability to adapt and embrace renewables. For the upstream industry to become more sustainable, it must focus on resources that are co-located with both plentiful clean electricity and CCS potential. These are the geological energy super basins of the future. The remaining traditional basins are at a disadvantage and face being left behind. At some point, the upstream oil and gas industry will move into a phase of inexorable decline as demand fades. This may happen sooner than the 2030s, as under our AET-1.5 scenario. Or it may be as late as the 2050s, as under our ETO base case. This evolution will be accompanied by a growing concentration of investment in energy super basins and an equivalent retreat from disadvantaged basins. Companies do not want to be caught out on the wrong side of this momentous transition. Recognising the long-term direction of travel presents an urgent call to action. It will take many years, even decades, to fundamentally realign global upstream portfolios with the new energy super basins. First-mover advantage applies. The sooner the transition starts, the better.

Get this insight as a PDF

August 2021

The energy super basins of the future

While the oil and gas industry’s past is rooted in its traditional super basins, its future will be energy super basins. These feature co-location of three essential elements

Join the debate. Get in touch with Brian

Brian Gaylord

Senior Research Analyst, Power and Renewables

Brian is a principal analyst on our global power and renewables team. He produces analysis across various power and renewables technologies and regions, and coordinates publications that focus on strategic competitive dynamics. Before his current role, Brian led Wood Mackenzie’s wind power analysis in Latin America and Southern Europe. He has managed publications across the value chain and has worked in both research and consulting. Brian joined MAKE Consulting, now part of Wood Mackenzie, in 2010 from the Trade Commission of Spain (ICEX), where he was a renewable power market and supply chain analyst.

David Brown, Head of Markets and Transitions, Americas Ram Chandrasekaran, Head of Road Transport Brian Mcintosh, Title

Plastic surgery:

Reshaping the profile of the plastics industry

Host governments may have opportunities to improve the outlook of a basin

For the upstream industry to become more sustainable, it must focus on resources that are co-located with both plentiful clean electricity and CCS potential.

Source: Wood Mackenzie Lens

Offshore wind is poised to become one of the key technologies powering the decarbonisation of the global economy. The technology is proven and investors have confidence in it. Costs fell 50% between 2015 and 2020 and are expected to fall further. In December 2021, the world’s first fully non-subsidised contract for an offshore wind project was awarded in Denmark. It’s not just about cost; it’s also about location. Offshore wind has strong public policy support as another source of large-scale, carbon-free generation in land-constrained areas or regions with less attractive solar irradiance or onshore wind resources. Consequently, sectoral growth is set to explode. We project that US$1 trillion will flow into the offshore wind industry over the next decade. By 2030, we expect 24 countries to have large-scale offshore wind farms, up from nine today. Total installed capacity is likely to reach 330 GW, up from 34 GW in 2020. By 2030, as much money will be invested in offshore wind as in onshore wind. There is further upside potential to our outlook, too, such as Europe’s accelerated push to capitalise on offshore wind and other renewable technologies to reduce its dependence on Russian gas and coal. Similarly, competitively priced offshore wind is likely to play an important role in powering electrolysers to produce hydrogen, so some of its growth will be tied to the scaling up of the green hydrogen industry. The opportunity in offshore wind has not gone unnoticed and is attracting a growing number of competitors. As bidders flock in, Wood Mackenzie has come up with a new competitive framework to assist offshore wind players in determining the capabilities and competencies they need to improve their chances of success around the world. The framework sets out which bidding parameters will be important when and where in a rapidly changing market.

We project that US$1 trillion will flow into the offshore wind industry over the next decade

Jun 2022 The Big Ban: Global commodities in a post-Ukraine-war world May 2022 Sea Change: Navigating the trillion-dollar offshore wind opportunity Apr 2022 Security alert: Five lessons from the energy crisis

Missed our previous editions of Horizons?

Andrew Latham

Vice President, Energy Research

Andrew brings over 25 years’ experience in technical and commercial aspects of exploration, assisting majors and independent companies in strategy development and portfolio planning. He currently leads our exploration research team. Adept at providing exploration economics analysis, strategic evaluation and insight on industry trends, Andrew has a close network of clients across the global exploration industry. In the past, he led the Exploration Strategy Team within our consulting division and is accustomed to helping his clients optimise their petroleum exploration investments. He is regularly called upon to advise on strategy, process, opportunity characterization and evaluation. He has also directed multi-client projects on exploration, deepwater and Arctic themes. Andrew also possesses deep expertise on the Sub-Sharan African region and has managed our research products and consultancy services in the region, as well as undertaking a range of market analysis and regional strategy projects. He began his career as a geologist with Ranger Oil.

Join the debate. Get in touch with Andrew

Traditional super basins ranked by produced plus remaining resources

The world’s need for sustainable energy is set to change the geography of the oil and gas industry, increasingly entwining it with renewables. The upstream industry of the 2030s and beyond, therefore, must focus on where its synergies with new energies are strongest. More than 90% of current oil and gas production comes from around 40 traditional super basins. Until the Paris Agreement on climate change, the industry had developed these basins much like any other commodity, with the primary objective of resilient growth at the lowest cost. The overall footprint today, therefore, barely reflects new sustainability and carbon goals. Only a fraction of these basins holds the low-carbon advantaged resources we need. Most companies’ immediate sustainability priority is to reduce scope 1 and 2 emissions from owned operations and purchased energy. Such cuts are best enabled using plentiful clean electricity, which is not feasible in many basins. Longer term, the bigger need will be to sequestrate scope 3 emissions. Hub-scale carbon capture and storage (CCS) is the key technology, again not feasible in many basins. For the upstream industry to become more sustainable, it must focus on resources that are co-located with both plentiful clean electricity and CCS potential. These are the geological energy ‘super basins’ of the future. The remaining traditional basins are at a disadvantage and face being left behind. Ranking basins by the availability of clean electricity and CCS potential reveals clear winners. Good examples include the Permian and Gulf Coast in the US, Australia’s North Carnarvon and the Rub al Khali in the Middle East. By contrast, Russia, Alaska and Venezuela’s basins fall at the wrong end of the spectrum. None of these rankings are set in stone. Government intervention and/or new technologies could yet make a big difference. The world will need oil and gas for many decades to come. But it is already clear that the upstream industry of the 2030s needs to reset geographically. Companies that shift to energy super basins will be the ones that survive. Their upstream strategies must become ever more entwined with low-carbon businesses.

Julie Wilson

Research Director, Global Exploration

Julie has specialised in global exploration since January 2011, following 11 years at Wood Mackenzie split between the upstream consulting and research divisions. She has worked closely with clients advising on global and local industry issues, with a recent focus on exploration strategy and performance. Julie moved to Houston from the UK in November 2000 in an upstream consulting role. She helped build the Houston consulting practice and managed a wide variety of international consulting engagements, including corporate strategies, exploration and country entry strategies, competitor analysis, gas supply and market analysis. In 2006, she moved across to research and built the Houston-based team focusing on the deepwater US Gulf of Mexico. Prior to joining Wood Mackenzie, Julie worked in BP's upstream business for eight years in a variety of political, commercial and financial analysis roles, spanning international and domestic North Sea operations and exploration.

Join the debate. Get in touch with Julie

Russia’s war on Ukraine has reshaped the commodities world and catapulted energy security to the top of the global political agenda. Energy trade flows are being transformed, investment in new LNG supply looks more compelling and the pace and cost of the energy transition is changing. Governments, companies and investors must respond. Governments - Countries with domestic hydrocarbon and critical mineral resources will need a twin-track approach: maximising production of their resources in the short term while stepping up investment in low-carbon energy supply to meet future demand in the long term. The huge challenges facing global supply chains can only be resolved by governments supporting strategic investments to overcome bottlenecks. Investors - Investment opportunities are widening. Energy transition investments will be more expensive, but higher commodity and power prices mean they remain competitive. European wind and solar looks a solid bet. Energy security priorities will ensure returns remain attractive for hydrocarbons and, increasingly, critical infrastructure. US LNG looks the most attractive option, capable of being delivered to market quickly and with limited capital exposure. However, the era of mega oil and gas projects is not coming back. Companies - Hydrocarbons will be tremendous money spinners for some time to come. We continue to see attractive opportunities for low-cost, low-carbon supply of oil and gas from the national oil companies (NOCs). But large-scale investment by IOCs in traditional oil and gas projects, as well as international miners in coal projects, will be increasingly displaced by growing investment in low-carbon energy projects. High and volatile prices will require a renewed focus on trading capabilities and fungible assets. Metals could be the next growth areas for cash-rich IOCs.

Today’s oil and gas industry is no longer fully fit for purpose. It has grown over many decades to be resilient through endless price cycles. This long prioritisation of upstream economics and security of supply is writ large in its current form. Production comes mostly from prolific traditional upstream ‘super basins’, where giant fields and established infrastructure guarantee the lowest cost of supply.

Now the world’s demand for much lower emissions is forcing change on this legacy industry. Some basins are fit for the future and some are not. The current geographic footprint of the oil and gas industry largely predates such concerns about sustainability and carbon, and it shows. Advantaged resources – low cost and low carbon – must become the future of oil and gas. Some traditional super basins will evolve into the energy super basins of the future. These will use renewables and CO2 sequestration to improve sustainability. Making disadvantaged barrels advantaged is a huge opportunity and will be a key investment theme. But other traditional super basins will be harder to decarbonise and face being left behind.

Upstream in 2030 and beyond

Some basins are fit for the future and some are not.

Energy super basins: the co-location of large-scale oil and gas, clean electricity and CCS

Source: Wood Mackenzie

Today’s oil and gas industry is strikingly concentrated. Almost three-quarters of resources are in just 10 basins that hold more than 100 billion boe. Fewer than 50 traditional super basins supply more than 90% of the world’s oil and gas. These are defined as originally holding more than 10 billion boe resources, of which more than 5 billion boe remains. Basins drop off the list as they mature and fall below this threshold. Exploration occasionally opens up new super basins, with Santos (Brazil), Rovuma (Mozambique) and Guyana (including Suriname) added to the list since 2000. Future success by frontier wildcatters may add a handful more. Indeed, it is a very good reason to persist with high-impact exploration. The Orange Basin of Namibia and South Africa is perhaps the next strongest candidate.

Renewables can help decarbonise some traditional basins

Decarbonising the upstream is the industry’s most pressing sustainability task. Traditional super basins enjoy economies of scale and efficiencies, which help lower Scope 1 and 2 carbon intensity, but are not enough. High-carbon sources of supply must be displaced by advantaged, low-carbon resources. The initial focus must be on slashing scope 1 and 2 emissions. Here, operators have most control. Most of the world’s production is operated by companies that already have targets to become net zero on Scope 1 and 2 emissions by 2050 or earlier. This includes all majors, key national oil companies and many independents and integrated companies. Scope 1 and 2 emissions account for about 5% of total energy-related emissions and currently amount to more than 1.4 Btpa CO2e. Many new oil and gas fields have much better emissions intensity because of higher throughput and newer technology. They offer hope that a future halving of scope 1 and 2 emissions might eventually be possible. Electrifying operations using a clean, renewable energy source is one of the fastest and best ways to eliminate emissions. It is easiest on new fields, but can be worthwhile retrofitting to some older assets. In most basins, the dominant clean electricity technology of the future is likely to be solar, although a significant minority at higher latitudes are better placed for wind. Only Norway will be primarily hydroelectricity, with few significant new hydro projects expected anywhere else. Geothermal could be a niche wildcard if advanced technologies move forward. Advantage also depends on low cost. Any renewable energy source must be plentiful and affordable. As power transmission over long distances is wasteful and costly, proximity to oil and gas operations is important. Many potential North Sea electrification projects will need carbon prices of US$125-250/tCO2e and will not be competitive with other decarbonisation options unless their costs can be slashed. Remote deepwater facilities could be most challenging, but not impossible. The co-location of low-cost renewables with low-cost oil and gas is key. And, of course, surplus renewables can also be fed into the grid as part of the overall energy system.

Traditional super basins’ potential for clean electricity via wind or solar

Source: Wood Mackenzie Lens Higher index scores represent lower electricity costs. Wind and solar index scores are normalised to reveal the dominant technology. The wind index score reflects average onshore or offshore wind speed in the basin adjusted for logistics and supply-chain challenges. The solar index score reflects average horizontal irradiance by basin, also adjusted for above-ground challenges.

High-carbon sources of supply must be displaced by advantaged, low-carbon resources.

CCS can boost sustainability in some traditional basins

Scope 3 emissions are the elephant in the room. They accounted for more than 90% of oil and gas’ emissions of 18.5 Btpa CO2e in 2021, representing over half of the world’s total energy-related emissions. Eventually they, too, must be addressed to meet the Paris commitments. Under our base-case energy transition outlook (ETO), emissions are flat to 2050 while demand rises 5%. Our accelerated energy transition (AET-1.5) scenario, under which global warming is limited to 1.5°C, sets out what is needed to achieve the most ambitious targets of the Paris Agreement. Demand for oil and gas halves, while net emissions are cut by 76%. We are starting to see some oil and gas producers adopt scope 3 targets in order to be Paris-aligned for the longer term. But these emissions are not under companies’ direct control and are much harder to cut. Four of the majors have net zero scope 3 targets for 2050, and many are targeting reduced emissions intensity before then. Scope 3 emissions can be reduced directly by cutting production or indirectly via sequestration or offsets. If demand is unchanged, then production cuts merely shift emissions to a different operator. Most will opt for sequestration as the pragmatic alternative, although the net zero standard limits how much companies can offset. The most promising sequestration technology CCS is the most promising sequestration technology. It offers the scale to decarbonise difficult-to-abate consumer sectors and could save 18% (with direct air capture) of annual global emissions by 2050. CCS does not need to be in the same basin as oil and gas production, but in practice is unlikely in locations away from upstream operations. Today’s CCS industry is in its infancy. Project pipelines for CCS have ballooned in the past year. If all announced projects go ahead as planned, CCS capacity will expand seven-fold by 2030. But this is from a very small base. The real scale-up and contribution to emissions reduction will come after 2030. All existing, planned and hypothetical projects add up to just under 1 Btpa CO2e total capacity. These are concentrated in a handful of countries, largely reflecting the location of commercially feasible CO2 point sources rather than the limited availability of subsurface storage resource. We expect global CCS capacity to grow to between 2 Btpa (base case) and 6 Btpa (AET 1.5) by 2050. Exactly how and where this will happen is unclear. Our assumption here is that this growth will come mainly from countries that will have hub-scale emissions sources available close to subsurface storage options. CCS operators will offer sequestration as a service to emitters. Not all the countries where CCS will be most needed are developing projects.

Scope 3 emissions can be reduced directly by cutting production or indirectly via sequestration or offsets.

Known and hypothetical project CCS capacity

Source: Wood Mackenzie Includes existing, planned and hypothetical CCS projects. Data are Mtpa CO2e storage capacity.

CCS capacity by 2050 under our AET-1.5 scenario

Theoretical CCS capacity required by 2050 under our AET 1.5 scenario. Data are Mtpa CO2e storage capacity.

A simple scorecard approach using clean electricity and CCS indices identifies those basins best placed to make the transition. Some are obvious candidates, scoring highly on all criteria. Others look much less attractive. For companies with global portfolios, the co-location of CCS is less important. Storage does not need to be in the same basin as production. The majors and other big players can build CCS capacity in locations quite separate from their key upstream basins. There will be some advantage where subsurface knowledge has been established from long upstream presence. Most smaller players will prefer to stay closer to home. How not to get left behind Our clean electricity index is based on the affordability and scale criteria of the dominant renewables technology in each basin. Our CCS index reflects known and hypothetical project capacity combined with theoretical capacity by 2050 under our AET-1.5 scenario. These scores are not set in stone. Plenty of basins currently sit somewhere in between energy super basins and disadvantaged basins. Host governments may have opportunities to improve the outlook of a basin. Carbon taxes and other fiscal and regulatory moves to accelerate decarbonisation – especially where they enable CCS – could play an important role and should be seized where possible.

abundant advantaged resources access to low-cost renewables hub-scale CCS opportunities

• • •

Energy super basins versus left-behind basins

Source: Wood Mackenzie Lens Upstream and Lens Power. Bubble size represents produced plus remaining resources. Clean electricity index based on affordability and scale criteria. CCS index based on known and hypothetical project capacity together with theoretical capacity required under our AET-1.5 scenario.

The upstream industry of the 2030s will have a different footprint as investment migrates to the new energy super basins. With some basins set to be left behind, the industry will inevitably become even more concentrated in its top basins. At the same time, upstream strategies will increasingly merge with low-carbon businesses. Good examples of future energy super basins include the Gulf Coast and Permian in the US, the Rub al Khali in the Middle East, the North Sea, North Africa, and Australia’s North Carnarvon. These basins can look forward to healthy, coordinated upstream, renewables and CCS investment for decades to come. They will supply oil and gas long into the future under all demand scenarios. The big international oil companies and others with the most urgent emissions targets will be in the vanguard of creating energy super basins along with many leading national oil companies.

The big international oil companies and others with the most urgent emissions targets will be in the vanguard of creating energy super basins

Disadvantaged basins face a flight of capital and a product that is harder to sell

Multi-energy strategies are already happening. In late 2021, TotalEnergies announced new ventures in Iraq and Libya that both span solar projects and upstream oil and gas. Other majors are now willing to invest in small renewables markets, below their usual materiality threshold, where these can be combined with upstream opportunities. But these are just the first steps; the opportunity in energy super basins is enormous. Energy super basins also offer the most promising potential for the development of low-carbon green and blue hydrogen. Affordable clean electricity is essential, with good CCS potential being key to blue hydrogen.

Energy super basins map

Source: Wood Mackenzie Lens Upstream and Lens Power. Top Energy Super Basins feature strong renewables and CCS potential. Possible Energy Super Basins offer good renewables or CCS potential, but probably not both. Disadvantaged super basins lack strong renewables and CCS potential.

The time for multi-energy strategies is now

Hard-to-decarbonise basins likely to be left behind Some of the traditional super basins are not well placed for a more sustainable future. Their paucity of renewables and limited CCS potential will cause investment to fall and the corporate landscape to shrink, especially under our AET-1.5 scenario. Larger disadvantaged examples include West Siberia, most other Russian basins, Venezuela, Alaska and parts of Central Asia. Here, the high cost of renewables and/or limited access to these technologies are the main problems. Many smaller basins in Southeast Asia are also challenged. Disadvantaged basins face a flight of capital and a product that is harder to sell as consumers increasingly shun high-carbon options. The leading international oil companies will be among the first investors to leave. Some national oil companies and private firms with less onerous emissions targets may be happy to pick up any opportunities left behind. But the writing is on the wall. All companies must eventually back away from higher-carbon resources. Host governments may try a range of different incentives in a bid to stem the tide. Fiscal terms, regulation and policy must all work to optimise the integration of upstream, CCS and renewables as far as possible. But unless governments can address the underlying issues, they will face growing political and social resistance to any attempts to prolong the life of high-carbon basins.

Missed our previous editions of Horizons?

Julie Wilson

Research Director, Global Exploration

Join the debate. Get in touch with Julie

For the upstream industry to become more sustainable, it must focus on resources that are co-located with both plentiful clean electricity and CCS potential.

The world’s need for sustainable energy is set to change the geography of the oil and gas industry, increasingly entwining it with renewables. The upstream industry of the 2030s and beyond, therefore, must focus on where its synergies with new energies are strongest.

Hard-to-decarbonise basins likely to be left behind

The world’s need for sustainable energy is set to change the geography of the oil and gas industry, entwining it with renewables. The financial success of oil and gas companies will depend on their ability to adapt and embrace renewables.