What happens when quantum computing re-defines the assessment of investment risk?
The dawn of quantum computing is upon us and as the world’s smartest minds determine how the technology will change our daily lives, we consider how it could benefit investors in oil and gas projects to make better decisions. The oil and gas industry relies on investment for its survival and investors expect a return commensurate with the risks of a project. The classical approach to investment evaluation relies on mathematics in which estimated project cash flows are assessed against a cost of capital and an upfront investment. The issue with this approach is the key assumptions which underpin the project cash flow calculations such as reserves, production and market prices are themselves estimates which each introduce a degree of risk. If we analysed the financial models of recent oil and gas developments we would find the key assumptions which underpin the projects would be vastly different to reality. The crystal ball of investment evaluation would benefit from a more powerful way to optimise estimates and assess risk. A quantum computer offers the ability to perform optimisation calculations not possible with classical computers. The theoretical ability to run infinite parallel processes (as opposed to sequential processes in classical computers) can fundamentally change the optimisation of estimates. Google and NASA were recently able to solve a highly specialised computing problem with a quantum computer 100 million times faster than a classical computer. The power to significantly improve estimation optimisations and thereby reduce risk will help investors achieve a higher degree of confidence and should see levels of investment increase.