January 2017, Vol. 244, No. 1

Q&A

Q&A: Energy Expert Offers Global Perspective

Melissa Stark is in an enviable position as Managing Director Energy Industry Group for Accenture. She carries impressive educational credentials that, along with 18 years of working in every energy sector, place her in a key post with the global consulting giant.

Stark was the assistant chair to the Technology Task Group of the National Petroleum Council’s Future of Transportation Fuels Study (Advancing Technology for America’s Transportation Future) commissioned by Energy Secretary Stephen Chu. The study was released in August 2012 and focused on different engine/platform/fuel options for the U.S. through 2050, including advanced engines and platforms, biofuels, electrification, natural gas, and hydrogen and fuel cell vehicles.

Based in London, Stark has an MBA with Distinction (honors) in transportation management from J.L. Kellogg Graduate School of Management at Northwestern University. She also has a bachelor’s degree in science (honors) in finance from the Haas School at the University of California at Berkeley. 

P&GJ: Melissa, where are you from and what were some of your interests growing up?

Stark: I grew up in Northern California. I was the daughter of an electrical and a chemical engineer, so I was exposed to science, technology and math from an early age. I like math and ended up with a BSc in finance from U.C. Berkeley. I thought I was going to be a derivatives trader until I got a feel for the culture, and it wasn’t a good fit for me. I went into management consulting instead.

P&GJ: What prompted you to decide on a career in the energy industry?

Stark: In 1994, I was working in supply chain and got staffed on an offshore logistics project in Peterhead, Scotland. I was impressed with the physical scale of the operations in the U.K. North Sea and the opportunity to work in an industry that was so material to the global economy. It was on that first project that I decided I wanted to work in energy.

P&GJ: When did you join Accenture, and what is your role with the Energy Industry Group?

Stark: I joined Accenture in 1993. I have had various roles in energy – clean energy lead, unconventional resources lead, and am now leading our community for natural gas and LNG.

P&GJ: What is your perspective on the future of fossil fuels? Will we see continued development of unconventional sources in what is still a low-price environment, or has the shale revolution peaked?

Stark: I think the low oil price environment has strengthened the role of unconventionals, a point of view I have held for some time now. It’s not only the continued fall in costs and improvements in productivity that we are seeing in the Permian and Marcellus basins. For oil companies having both conventional and unconventional assets in their portfolios, the short-cycle, cash-flow profile, and potential upside with respect to productivity and operational cost of unconventional sources have influenced how they calculate the risk-weighted value of their portfolios and potential investments.

For example, in today’s relatively low oil price environment, a conventional multibillion-dollar mega-project in a high-risk geography that is still in concept or pre-investment (high risk, higher return) might be less attractive than the $5 million per well, short-cycle U.S. investment that can be started/stopped more flexibly and has potential upsides (lower risk, lower return). We see the growth in development and production of unconventional resources in Argentina, but also in China and Saudi Arabia.

P&GJ: Outside of the U.S., what other countries are leading in development of unconventional resources?

Stark: Argentina is developing the fastest. The Vaca Muerta field has great geology – in 2015 YPF and Chevron drilled a super-well with initial production of 1,630 bpd. Costs of drilling wells there also continues to fall.¹

In China, Sinopec’s operations in the Fuling basin continue to drive strong results, producing about 4 Bcm in 2015 with a target to produce 10 Bcm by the end of 2017.  The biggest challenge in China is that the geology is different, so new technologies need to be development. There also are a lot of above-ground challenges.²

In Saudi Arabia, it is also interesting to see how shale development can make an impact, as they burn oil for power, and the shale gas will provide gas to industrial parks.

P&GJ: What alternative energy sources appear most promising in the next 20 years and what challenges will they face in the marketplace? Do you foresee a workable alternative to transportation fuels?

Stark: For the power generation side, wind (onshore and offshore) and solar [cells] PV, are the most promising. Technology costs continue to come down. In addition, because of the large number of small installations and the distributed nature of generation in these technologies, digital, analytics, lean and continuous improvement are all tools that can be applied.

For the transportation sector, the alternatives to traditional petroleum liquid fuels are probably going to be primarily electric (taking advantage of renewables, declining battery costs, the availability of charging through the grid) and renewable natural gas (RNG) blended with gas (both CNG and LNG).

For example, today most of the heavy vehicles including trucks and buses in the U.S. run on diesel; overall they comprise a small percentage of total vehicles but they use a relatively high percentage of fuel. We are already seeing much targeted use of natural gas for such heavy vehicle transportation in the U.S. What is interesting is that increasingly much of that gas is starting to come from renewable sources – RNG.

However, I believe there will be continued improvements in fuel efficiency through improvements in the combustion engine and with light-weighted materials, such as carbon fiber.

P&GJ: Realistically, what do you expect the impact of climate change will have on the energy industry, particularly natural gas/oil?

Stark: At the country level, the impact depends on the country’s access to renewables (vs. conventional sources) and whether the country can afford renewables.

Generally, for the energy industry, climate change coupled with air quality issues are:

• Driving a shift in the energy mix. According to the International Energy Agency, renewable energy investment, primarily in wind, solar PV and hydropower was almost $290 billion in 2015 and new low-carbon generation – renewables and nuclear – from capacity coming online in 2015 exceeds the entire growth of global power demand in that year.³

• Driving energy companies to ensure that renewables, alternative fuels, and energy and efficiency are part of their operating philosophy and portfolio.

Natural gas needs to be viewed as a complement to renewables. Natural gas demand will not grow as expected if coal is used with renewables. For oil, there are cleaner alternatives; for example, the use of natural gas for transportation, biofuels and electric investment.

P&GJ: Where should we expect to see new pipeline development in the U.S.?

Stark: Clearly, the U.S. already has an extremely extensive natural gas pipeline system, but uneven growth in demand as well as new shale supplies coming on stream have tested the network as has underinvestment. We are seeing a substantial shift in the traditional natural gas flow dynamics as production continues to come online in new shale basins – the Marcellus in particular. Local gas production in the Marcellus is displacing gas produced in the Gulf of Mexico area that was traditionally transported to demand centers in the Northeast.

New pipeline development is focused on filling some of these gaps, for example gas production from the Marcellus and Utica regions has grown significantly the past few years and there are a number of pipelines being proposed or with reviews underway for this region, including Ohio in particular, to link the gas supply with demand centers. There is also a lot of reverse pipeline flow activity happening as companies attempt to link the new supplies with demand. We are also seeing an uptick in activity around planned gas export projects into Mexico.

Shale is not the only focus for new gas pipelines in the U.S., of course. New LNG export plants also require new gas pipeline infrastructure. The project cycle for new LNG export is long and complex, and it can be hard to manage getting all the approvals and capital in place, but increasingly managing the development of new gas pipelines is becoming a core competency for new LNG players as it’s a race to capture global demand.

It is interesting to note that some are predicting that Texas, historically the largest supplier of natural gas to the country, may ultimately be a net importer of natural gas as production declines from the Barnett and Eagle Ford are combined with the expectation of LNG exports, as well as export into Mexico.

P&GJ: Why is the industry facing so many challenges on new infrastructure, particularly pipelines, and where is this originating from?

Stark: To start, generally in the U.S. there has been a lot of under investment, mainly in infrastructure. To mention a few more challenges, the pipeline approvals process is complex and often runs across federal and state agencies. I also think there is now a growing awareness of new gas pipelines, and there are concerns about safety as well as increasing activist interest. In many cases, the challenges from activists can be quite sophisticated, such as their focus on the pipeline certificate process, which can cause significant delays.

P&GJ: What advice would you offer developers who are facing organized opposition, especially as they move into more urban areas?

Stark: They need to learn from the experience in places like Marcellus that stakeholder management and dialogue is key. They also should ensure that people affected by operations share in the benefits of the development. Lastly, the developer needs to invest in the best practices, including environmentally friendly drilling, water reuse, and logistics optimization to minimize congestion.

P&GJ: What is the status of the LNG market today? Does it still have the potential that many expected?

Stark: The LNG market is oversupplied today. It is a buyers’ market. Buyers are moving fast to take advantage of the low LNG prices and are supporting the development of new markets and new applications. Buyers are:

• Finding ways to bring LNG into new markets – for example PetroVietnam’s ambition to develop the LNG market in Vietnam (from no LNG today) and how they are leveraging the experience of other large buyers in the Asian market like Tokyo Gas.⁴

• Moving into new applications and developing new customers – for example a large city gas supplier in southern China is investing in a terminal and seeking business opportunities in the LNG trucking market, so an investment they were exploring just two years ago is now a reality

• Investigating “virtual pipeline” solutions as an alternative to building pipeline infrastructure.

With the buyers in control, LNG does have the potential to grow, but probably not to the size forecast a few years ago as many of these buyers also invest in renewables, coal and nuclear.

P&GJ: Two final questions: the natural gas industry likes to see itself as a transitional rather than a “bridge” fuel to the future. What’s your view?

Stark: Ideally, natural gas should be viewed as part of the future energy mix vs. being a transitional or a bridge fuel. Renewables will still need complementary firm capacity in places where there is no hydropower, and natural gas is a better choice than coal. For heavy duty transportation, natural gas, as CNG or LNG, blended with renewable natural gas, is a good alternative.

P&GJ: Is “energy independence” a misleading concept?

Stark: Energy security, through diversification, is probably a better concept. For example, China’s energy security strategy is diversifying its sources of energy and its sources of supply. Consider that for natural gas, China has pipelines, LNG and domestic production, so it further diversifies the markets and companies that supply LNG to China.

References

1. Source “Super Well Discovery And New Govt. Spark Shale Boom In Argentina”, Oilprice.com, December 9^th 2015, © Oilprice.com via Factiva
2. Source “Sinopec to double shale gas capacity at Fuling”, China Daily, 30th December 2015, © 1995-2016 China Daily, via Factiva
3. Source International Energy Agency, World Energy Investment Report 2016, ©2016 OECD/IEA/https://www.iea.org/Textbase/npsum/WEI2016SUM.pdf)
4. Source “PetroVietnam Gas, Tokyo Gas May Establish LNG JV in Vietnam, Mehr News Agency, 11 July 2016, © 2016 Mehr News Agency via Factiva)