The world’s oil and gas industry
development – Wärtsilä’s view
by Pauli Jumppanen, Doctor of Technology, Senior Advisor to Wärtsilä
Oil and gas will be the world’s main
fuels for decades to come. But
alternative and substitute fuels will
take an increasingly prominent role,
driven both by economic factors and by
active development of new technology.
Wärtsilä intends to maintain its leading
presence as a technology and solutions
provider to this vital industry.
Oil accounts for about 37% and natural
gas for about 24% of the world’s primary
energy consumption today. These shares
have remained fairly constant since the
decline in early 1980s, while the absolute
consumption ﬁgures have grown on average
by 2-3% a year, corresponding roughly to
world economic growth. So far economic
conditions in oil and natural gas production
have been governed by their good Fig. 1 – Proven oil reserves at end 2004, billion barrels.
availability and competitive price.
A number of estimates have been
made of recoverable oil and natural gas
reserves, and the results have been quite
different depending on the technological
and commercial criteria used for the
hydrocarbon ﬁelds in the analysis.
According to the well-respected ‘BP
Statistical Review of World Energy’, known
conventional oil reserves amount to 162
billion tons and should be enough for
40 years at current consumption levels.
Known natural gas reserves amount to
180 billion cubic metres and would be
sufﬁcient, correspondingly, for 67 years of
consumption. The EIA estimates original
recoverable oil reserves in the Earth at 320
billion tons, some 90% of which has been
recovered and already 50% produced.
In addition to conventional oil and gas
reserves, there are further huge quantities
of hydrocarbons in extra heavy oils and
bitumen, oil sands and shale, and tight
gas sands and gas hydrate formations.
Moreover, many potential high arctic
reservoirs as well as deepwater ﬁelds are
not included in conventional recoverable
reserves due to lack of technology or the
commercial feasibility to exploit them in
the near term. However, new technology is
being developed for processing extra heavy
oils and extracting oil from oil sands and
shale and several pilot-scale plants are now
Energy News – Issue 22 7
Fig. 2 – Crude oil prices since 1861, US dollars per barrel.
Alternative and substitute fuels
Oil and natural gas are likely to maintain
their dominating position as trafﬁc
fuels and also as primary fuels for power
generation for several decades to come.
However, production of alternative and
substitute fuels are being developed, and
these will gradually increase their share
of the energy market and, speciﬁcally, of
Typical substitutes currently considered
include coal gas and biofuels as well as
Fig. 3 – Rotterdam oil product prices, US dollars per tonne. wind power and hydrogen produced from
renewable sources. The speed of their
development will depend signiﬁcantly on
changes in the energy market and on global
and national policies introduced for their
Political and environmental factors
As discussed above, the critical factor in the
production and distribution of natural gas
in the near and medium term is not the
sufﬁciency of the reserves. The most critical
issues today are of a political, geopolitical
and environmental nature, as these
signiﬁcantly inﬂuence the world energy
market and current fuel prices.
It is well-known that the majority of the
known oil reserves (62%) are located in the
Middle East area and the bulk of natural
gas reserves in the Middle East (40%)
and Russia (26%). The smallest reserves-
Fig. 4 – Proved natural gas reserves at end 2004, trillion cubic metres. to-production ratios, both for crude oil
and natural gas, are found today in North
8 Energy News – Issue 22
taken by alternative and substitute fuels. Wärtsilä’s focus
Future increases in oil and gas production Wärtsilä is the leading global supplier of
should take place especially in Latin ship power equipment and of solutions
America and Africa, and possibly still in the for decentralized power systems based
Middle East. on medium-speed piston engines and
We expect more exploration and supporting services. Therefore oil and
production in the arctic regions of Russia natural gas based fuels, their availability,
and North America, a good example of cost structure and technological
which is the new consortium formed development are of great importance to us.
for the giant Stockmanovskoye gas ﬁeld Wärtsilä constructs integrated and packaged
in the Barents Sea. Oil and natural gas power systems based on medium-speed
consumption is likely to grow fastest in diesel, gas-diesel and gas-piston engines,
China and India, but also faster in other and its technology is known for its high
EMEs (emerging market economies) than reliability and performance.
in the OECD countries. For several decades, emissions reduction
The development of future oil and gas research has been a signiﬁcant part of
technology should lead to better security Wärtsilä’s product development, and special
of operations and improved economy attention has been paid to NOX reduction,
of projects. The former includes both for which Wärtsilä has introduced several
the security of supplies and the safety of new innovative solutions. Besides the ship
operations against various environmental power and onshore power production
hazards, and the latter the development applications, Wärtsilä is developing power
of all business segments both upstream systems and solutions for the oil and gas
(exploration and production) and industry, which are reviewed shortly below
downstream (distribution and marketing). and described in detail elsewhere in this
For example, oil production economy issue of Energy News.
can still be improved by using a higher Since the early 1990s, Wärtsilä has
percentage of associated gas to produce oil delivered a number of power systems for
ﬁeld energy. both onshore and offshore oil and gas
America, Western Europe and Asia-Paciﬁc. industry construction projects. The main
In addition to geopolitical imbalance, Impact of high prices focus areas have been oilﬁeld power, crude
many areas with signiﬁcant hydrocarbon High oil prices followed by rising prices of oil pumping, and natural gas compression
reserves are hampered by local political other fuels have a direct, short-term impact for gas distribution and storage.
and ethnic conﬂicts, or have insufﬁcient on the global energy market and most Wärtsilä units have demonstrated good
infrastructure for operations and national economies. One should remember, availability, high efﬁciency and excellent
investments. Such areas and countries are however, that the price of oil in 1979 ﬂexibility in the selected applications, as
found especially in Latin America, West reached US$ 80 per barrel at today’s rates well as sufﬁcient capabilities for burning
Africa and the Caspian region, although due to the Iranian revolution, and then available fuels including heavy oils, crude
conditions in many of those areas are now stayed above US$ 40 per barrel for one and oils and ﬁeld gases from natural gas or the
gradually improving. a half years. production of associated gas. The projects
The latest challenge for oil and natural High oil prices will encourage the have been implemented in co-operation
gas exploitation and associated energy development and use of alternative fuels in with compressor, pump and other oil and
production results from their inﬂuence on the marketplace. As the average price of oil gas industry manufacturers and vendors,
the environment and the world climate. was as high as US$ 38 per barrel in 2004, and have proved to be technologically
Local environmental problems have already coal consumption rose by 6.5% and the successful and economically viable.
been observed during the past two to three consumption of natural gas by 3.5%, one As discussed above, the oil and natural
decades, and also partly solved, but the percentage point more than for several years gas industry now lives in a changing climate
inﬂuence on global warming and global earlier. characterized by ﬂuctuating fuel prices,
weather patterns is quite a new and hotly High natural gas prices are also likely to political instability, environmental concerns
disputed issue. spur the development of LNG (liqueﬁed and competition from substitute fuels. This
This concerns, of course, not only oil and natural gas) and its trading, which will is creating concerns about what is going to
natural gas, but also other fossil fuels. Much further diversify the energy market; in happen to the world energy market, and is
research will be conducted in this area during 2004 alone, LNG supplies to the USA also posing new challenges for the industry’s
the years to come, but regardless of its ﬁnal increased by 30%. Existing new technology performance.
outcome, events like hurricane Katrina will projects for the development of substitute The introduction of new technology,
signiﬁcantly inﬂuence both technological fuels include coal gasiﬁcation with CO2 development of better infrastructure
solutions and commercial conditions in future sequestration, hydrogen production in gas and co-operation inside and outside the
oil and natural gas development. ﬁelds with CO2 pumping into the reservoir, industry will evidently become important
large-scale production of gaseous and liquid issues in future oil and gas exploitation.
Development trends state biofuels, and hydrogen production Power production is and will be an
Wärtsilä’s vision of future energy from wind, solar and renewable sources. important part of the industry. Wärtsilä is
development includes a strong long-term However, full commercialization of many interested in participating in this business
role for oil and natural gas in the world of these new technologies could take 20-30 and providing new technology and
energy mix with a gradually increasing role years, or even more. solutions for its further development.
Energy News – Issue 22 9