Technology, innovation and economy will shape energy industry in 2012, say DeloitteNews // January 3, 2012
A higher demand for gas, rising global commodity prices, together with demergers and nanotechnology will be among key themes to emerge in the energy sector in 2012, according to year-ahead predictions by business advisory firm Deloitte.
Gas is expected to become the fuel of choice for many global energy hubs as a result of tightening environmental regulations, expectations of ample supply at competitive prices, and the need to back up intermittent renewable resources such as wind and solar to ensure reliability.
The Middle East is expected to provide much of the incremental supply as a result of its massive resources and forecasted increase in export capacity. Indeed the production rate in the Middle East is projected to nearly triple over the next two decades, heralding the start of what many are terming ‘the golden age of gas’.
The complexity of the offshore value chain is expected to grow substantially over the next decade, driven by the rising global demand for energy, the move towards increasingly remote geographies and legislative change.
For North Sea firms, this could mean oil field service companies have to raise the bar to sustain success. “The industry operates under a magnifying glass with oil companies held accountable for environmental, anti-corruption and safety standards not just in relation to their own behaviour but for that of all their contractors,” said Graeme Sheils, oil and gas partner at Deloitte in Aberdeen.
“This increasing complexity may well trigger a round of industry consolidation however it is just one of the factors which we expect to see shaping the industry in the coming months.”
The outlook for the oil price and focus on finding new areas for development saw a number of companies split their upstream and downstream operations into separate units during 2011, allowing for a sharpened management focus, increased transparency for investors and creating additional value for shareholders.
“We believe that further splits will occur over the next two or three years within the ranks of the integrated international oil companies. Those companies severely constrained by the financial crisis and experiencing slow organic growth may find additional value in splitting their assets as each unit may be worth more than a single entity,” added Mr Sheils.
“However, some large vertically-integrated companies may maintain their current structure for several reasons such as the difficulty in assessing shipping assets and the time taken for renewable assets to become profitable enough to sell.
“The most important reason to stay intact may simply be that many are amongst the largest and most profitable companies in the world and maybe bigger is better.”
The increasing consumption and demand of natural resources has led to a scavenger hunt for new supplies by companies and countries alike. While the South China Sea has yet to be explored in depth, early predictions by Chinese analysts put oil reserves at over 200 billion barrels.
“While there are risks to establishing operations in the South China Sea, the potential rewards could be even greater,” Mr Sheils said. “Oil and gas companies have, in recent months, been pushing the boundaries by expanding their exploration work in contested waters. The main question is what will happen once a major discovery is found?”
he ongoing civil unrest in Arab countries will also continue to impact on the oil markets. This has seen the biggest impact in Libya where crude production fell from 1.6million b/d to less than 100,000 b/d since February.
“According to some estimates, this has seen global markets lose as much as 145 million barrels of Libyan oil and led to triple digit prices for both Brent and West Texas Intermediate (WTI). With production not expected to recover to pre-crisis levels until 2015 the effects of this will continue to be felt for some time.”