How oil firms can leverage AI to curb costs amid U.S.-China trade war
15 January 2025 |
5:29 am
Global upstream oil and gas activities in 2025 are poised for a focus on artificial intelligence (AI)-inspired efficiency, resource capture and strategic mergers.
Global upstream oil and gas activities in 2025 are poised for a focus on artificial intelligence (AI)-inspired efficiency, resource capture and strategic mergers.
But major deals are unlikely to surpass the $130 billion annual average seen over the last decade.
The insights are from Wood Mackenzie’s latest report, ‘Global Upstream: 5 Things to Look for in 2025’.
Key industry trends identified in the report include increased reliance on AI to optimise costs, a resurgence in conventional exploration and regional shifts in oil and gas production.
The report noted that the sector’s intensified focus on efficiency would see operators increasingly adopt AI and advanced tools to streamline operations.
Chairman of the House of Representatives Committee on Finance, James Faleke, said Nigeria’s cost of oil production per barrel is about $48 as he described Nigerian oil production as the most expensive in the world.
Chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, had also told lawmakers that oil companies operating in Nigeria gave tax authorities $48.71 as their average cost of producing a barrel.
While stakeholders like the former President of the Nigerian Association of Petroleum Explorationists (NAPE), Abiodun Adesanya, emphasised the need for Nigerian operators to adopt innovative strategies to reduce operational costs and enhance productivity in the oil and gas, analysts at Wood Mackenzie believed that cost reduction could be achieved through reliance on AI.
An industry analyst at Wood Mackenzie, Fraser McKay, noted that operators would progressively lean more heavily on AI and other sophisticated tools to optimise costs, production and revenues.
“Geopolitical tensions, softer prices and the risk of global tariffs are further driving the need for efficiency,” Mckay said.
McKay noted that improved confidence in sustained oil and gas demand is prompting upstream companies to prioritise resource longevity.
This shift, the organisation said marks the return of conventional exploration and disciplined capital allocation.
Another analyst, Robert Clarke, said investors would pay more attention to reserves and resource lives than in the last decade, and that companies would look to reload their hoppers.
The report forecasts a breakout year for global unconventional operations, with key opportunities in Saudi Arabia’s Jafurah basin, Argentina’s Vaca Muerta and Algeria.
While mergers and acquisitions (M&A) will remain a key strategy, the report noted that the sector is unlikely to exceed its $130 billion yearly average.
While the acquisition of assets was pronounced in Nigeria and Africa in 2024, the report noted after a wave of consolidation in 2023 and 2024, most deals would focus on bolstering portfolio longevity and meeting long-term demand.
“We will still see plenty of activity in the U.S. as Independents look to expand in markets outside of the Permian,” said Clarke.
National oil companies (NOCs) in the Middle East, China and Southeast Asia are expected to remain active players in M&A.
It noted that despite near-term concerns about oil demand, liquid production in the Americas is expected to grow by one million barrels per day (bpd) in 2025.
While the Permian basin’s growth will slow to 300,000 barrels per day, other regions, including Latin America and the Gulf of Mexico, will see significant contributions.
Deepwater Gulf of Mexico is projected to add over 300,000 bpd of liquid capacity, reaching a milestone of two million bpd for the first time.
Latin America will also deliver robust growth, adding 400,000 b/d of liquids.
The report anticipates a quiet year for final investment decisions (FIDs) on liquefied natural gas (LNG) projects, driven by rising costs and supply chain challenges. However, McKay noted that geopolitical uncertainties, including potential US-China trade tensions, could influence progress.
“US tariffs could lead China to retaliate, such as importing less US LNG, potentially delaying new project approvals,” he said.
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