Oil & Gas reality check 2012
Deloitte report examines the future of oil and gas in the Middle East and beyond
Moscow, February 6 2012 — The Deloitte Touche Tohmatsu Limited (DTTL) Oil & Gas reality check report examines how the oil and gas (O&G) sector could evolve in the coming year, considering the potential impact of trends that emerged in 2011, namely, Libya’s evolving political landscape, Iraq’s increased stability, Brazil’s emergence as an industry player, the global push toward shale gas production, and the decoupling of gas and oil prices.
According to the report, the governmental changes in Libya will have a deep impact on how its oil industry functions, as well as the extent of its participation in the global market. In Iraq, the increase in stability and decrease in violence could help the government ramp up its oil production capacity, but the country’s infrastructure may not be equipped to support an increase in production. Additionally, security concerns in both countries remain paramount.
“It is expected that an increase of output by non-OPEC nations will make up for rising demand in 2012, and while Iraq and Libya will undoubtedly play a major role in the global oil industry, both countries have obstacles to overcome that will likely have a major impact on the market in the year ahead,” said Carl Hughes, DTTL Global Head of Energy & Resources.
According to the report, Brazil’s entry into the global oil production market—after an estimated 50 to 120 billion barrels’ worth of high-quality light sweet crude oil reserves were discovered offshore—has left Brazil’s federal government, its states, the majority state-owned oil company Petrobras, and international oil companies all wanting a share. As the Brazilian government tries to determine how to maximize profit from these fields, the primary challenge that has emerged is how it can avoid jeopardizing the billions of dollars in investment needed to develop the fields, as raising taxes and royalties on the oil reserves could deter foreign investment.
The production of shale gas has already transformed the energy industry in the United States, and now a global push for the production of this resource has taken place, with Europe, Asia, and South America leading the pack. But according to the report, there is still inconclusive evidence of the potential effects that hydraulic fracturing, the process used to extract the gas from the tight rock formations, has on groundwater resources.
“The more emerging markets find shale gas, the more it will have an effect on the global gas industry,” said Ken McKellar, Deloitte Middle East Regional Leader in Energy & Resources. “Energy demand in the emerging markets is on the rise, making energy security a critical priority. Therefore, these countries are less likely to be concerned with the environmental consequences of hydraulic fracturing. Shale gas could change their fortunes and make them into net exporters, which many analysts expect the United States to be by the end of the decade.”
Elena Lazko, Deloitte CIS Partner in Energy & Resources, commented: “We certainly have experienced huge structural changes in gas markets. This is due not only to the shale gas revolution in the USA and the increased interest of Europe, Asia and South Africa in shale gas production; but also other large-scale discoveries, particularly in Azerbaijan and Mozambique, and the globalization of gas markets, for example, liquefied natural gas (LNG) markets in Qatar and Australia. In such an environment, it will be interesting to see the next steps taken by Russia (which is currently the leading gas exporter in the world) to defend its long-term contracts, especially those with China.”
The report also finds that oil and gas prices could decouple permanently, due to the globalization of natural gas, companies that increasingly specialize in all facets of the gas industry value chain, and the emergence of shale gas. Furthermore, according to the report, oil demand will remain high, which will keep prices rising steadily. And with the globalization of natural gas, markets are able to set their gas prices based on market prices, not oil prices.
Among the other topics covered in the report are: labor issues faced by the Canadian oil sands industry, the American tight oil industry, the emergence of non-traditional consuming national oil companies, and the WTI and Brent price gap.
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