Energy Predictions 2010
Energy Predictions 2010 is the first in an annual series of predictions reports to be published by the Deloitte Touche Tohmatsu Global Energy & Resources group. These predictions were developed based on in-depth interviews with clients, industry analysts, and the most senior energy practitioners from Deloitte member firms. The report is being released at a time when many economies – both developed and developing – are emerging from one of the deepest global recessions in the last 50 years. Given the number of challenges to be faced by the energy sector in 2010, this particular set of predictions is both timely and insightful.
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Energy companies may play a more active role in the cap-and-trade debate by developing their own sector-specific carbon trading scheme as a way to mitigate policymakers’ attempts at legislation that is largely being regarded as a piecemeal approach to comprehensive issues.
Oil & gas companies – both international oil companies (IOCs) and national oil companies (NOCs) – will face particularly difficult issues in the year ahead. Mergers and acquisitions activity is likely to begin to rebound in 2010 and attain pre-recession levels by 2011. Independents and junior oil companies will continue to struggle as the recession severely impacts cash flow. These companies are likely to become acquisition targets over the next year. There are likely to be limited amounts of M&A activity within the super major ranks as these firms hold onto their cash and maintained capital expenditure programs during the downturn. NOC-to-NOC transactions will continue to increase as these firms share cultural similarities and political goals. Finally, examples of ‘employment nationalism’ are beginning to appear in such areas as Venezuela, Russia, Africa, and the Middle East as western oil companies will be told to hire from the local population as opposed to the best available candidate.
Power and utilities companies will face their own issues. The most important of these is the continued rise of the Smart Grid. Smart Grids have the potential to revolutionize the power sector. The average efficiency of the world’s existing electricity grids is only around 33 percent versus 60 percent based on the latest technology. Smart Grids have the potential to reduce energy consumption by up to 30 percent and decrease the need to construct new power plants. Pressure to resolve the coal conundrum will intensify as coal is one of the most abundant sources of energy. Commercial-scale carbon capture and storage (CCS) technologies may provide the answer although generation efficiency suffers. Energy efficiency – long touted as the ‘silver bullet’ solution – will grow from optional to essential. In the U.S., the unprecedented amount of stimulus money available to both consumers and businesses will shift the emphasis over the next few years from building more generation capacity to using power much more wisely.
Renewable energy production will heat up in two places synonymous with fossil fuels: the Middle East and North Africa. The geographic and demographic conditions are just right for a new type of renewable energy leadership. These regions have ideal weather conditions – intensely hot with significant sea breezes during the day – as well as close proximity to the developed population centers of Europe where much of the energy production will be used.
A global economic turnaround is beginning to take shape but what shape will it take? This is perhaps the most important issue for energy companies to deal with. Many economists are predicting a “W-shaped” recovery. In this scenario, overall economic growth experiences a modest upturn but the economy remains weak in certain segments.
Energy Predictions 2010 is a must read for energy companies, policy makers, and anyone with an interest in today’s energy challenges.
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