Artificial intelligence could help the energy industry extract an additional trillion barrels of oil by making it cheaper to extract. Analysts at Wood Mackenzie made the prediction recently, adding fuel to an already heated debate: Will AI accelerate the transition or, as Wood Mac’s prediction suggests, hinder it by extending the world’s dependence on oil and gas?
For the energy industry, the issue is quite irrelevant. From the perspective of companies in the energy raw materials extraction business, AI is a big positive that will help them continue extracting energy raw materials for a longer period, for less money than they would have otherwise needed.
This is an important consideration in the context of energy security, and it became even more important in recent months after forecasters began to change their predictions in the face of physical facts. Even the International Energy Agency has abandoned its peak oil prediction and now expects oil to remain a dominant element in the global energy mix until 2050.
For climate activists, however, the role that AI could play in bringing hundreds of millions of new barrels to the oil market is that of a villain. While often touted as an important tool in the pursuit of a net-zero energy system, artificial intelligence is now emerging as a tool to halt the transition by opening up new oil deposits to producers.
Related: Resilient oil demand makes AI an enemy of the transition
Axios, in a report on Wood Mackenzie’s prediction, cited a climate activist lamenting the findings of the consultancy’s forecast and suggesting that the transition might have had a better chance if oil and gas had become harder to extract and more expensive, but alas, AI came along and put an end to that.
“Fossil fuels were becoming too difficult and expensive to produce, until AI came along to make them profitable again,” the report quoted activist Holly Alpine as saying. In fact, it is true that in many places the production costs of oil extraction are increasing, driven by factors such as general inflation and the depletion of natural reservoirs. However, in the case of oil, it has always been about demand driving supply, so as demand remains resilient, so will supply, and AI could help producers optimize extraction.
Interestingly, the conclusions of the Wood Mackenzie report are also based on artificial intelligence. The company developed its own AI-based tool called Analogues and then used it to identify fields where the biggest profits could be made in areas that are already producing. The tool revealed that using existing technologies in production, the energy industry could extract an additional 1 billion barrels of oil from existing fields alone.
This should be good news as oil demand will continue to grow for longer than expected, again according to Wood Mackenzie. Global demand for crude oil will continue on an upward trajectory until at least 2032, the consultancy said in a report last month, adding that the world was a long way from meeting the goals of the Paris Agreement. In an ironic twist, AI could well contribute to further veering off course from the Paris Agreement due to its enormous energy needs.
The energy consumption of data centers has become noticeable in a matter of months. The facilities that house AI infrastructure require so much electricity to operate reliably that traders are rushing to bet on a natural gas rebound while utilities plan new power plants to ensure there is enough supply. Forecasts point to a sharp increase in electricity demand wherever there are data centers and in some cases even suggest that an electricity shortage may arise, for example in Norway.
The energy consumption aspect of artificial intelligence has raised serious concerns in climate change advocacy circles, as it has spurred a race to secure basic power generation capacity, i.e. gas, coal and nuclear power. However, some industry members believe that AI itself is critical to the energy transition by helping to transform the grid and improve power generation and distribution, while keeping energy affordable. The technology has yet to deliver on this particular promise, but it is already helping oil and gas producers optimize their production processes.
Meanwhile, demand for oil continues to rise, despite all efforts to replace it with demand for electricity generated by low-carbon technologies such as wind and solar. Two months ago, crude oil demand saw an especially sharp rise on both a monthly and annual basis, suggesting that those new “stronger for longer” forecasts may well be correct. Lower prices will also help, although forecasters argue their price predictions are bearish due to weak demand. The thing about oil is that when the price is low enough, demand increases, and what Wood Mackenzie’s model suggests is that AI can put a cap on prices by optimizing drilling, ensuring supply remains affordable for longer.
By Irina Slav for Oilprice.com
More Oilprice.com Top Reads
Oilprice Intelligence gives you the signals before they become headline news. This is the same expert analysis read by veteran traders and political advisors. Get it for free, twice a week, and you’ll always know why the market moves before everyone else.
You’ll get the geopolitical intelligence, hidden inventory data, and market rumors that move billions, and we’ll send you $389 in premium energy intelligence, on us, just for subscribing. Join over 400,000 readers today. Get access immediately by clicking here.
Source link
