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Deloitte Energy & Resources Predictions 2012 report looks at key themes in the year ahead

New York/London/Moscow, 12 October 2011 — Deloitte Touche Tohmatsu Limited (DTTL) today announced the launch of its third energy predictions report, Energy & Resources Predictions 2012.

The report provides insight into the key themes likely to impact the energy and resources sector in 2012, including volatility in commodity prices, breakthroughs in nanotechnology, new technologies in oil recovery, future of oil field services, and the rising importance of water footprint for energy companies, which the report claims will be one of the key themes throughout 2012.

“Over the last twelve months, there have been no shortage of themes impacting energy and resources globally,” said Carl Hughes, Global Head - Energy & Resources. “From the impact of the ‘Arab Spring’ on oil markets to rising commodity prices to the heated debate over the future of nuclear power, these themes are diverse as they are geographically dispersed and they serve as an underlying current in this year’s report.”

Commenting on the report in Moscow, Russell Banham, Commonwealth of Independent States (CIS) Industry Leader for Energy & Resources, said, “The importance of the CIS is further evident in this year’s report, from both a supply and demand perspective. The ever growing importance of gas and other mineral resources should keep the region at the forefront of the international energy and resources markets and could even act as a protection mechanism for the CIS against the possibility of a double dip recession.”

The report outlines 10 predictions that could impact the energy & resources sector:

  • Prices of rare earth metals to remain high, but volatile. Silver is the best-performing commodity, up nearly 30% since the beginning of the year. Gold remains the second best-performing commodity so far this year, up 24.6% since January, but the report states that europium oxide, dysprosium oxide, terbium oxide, neodymium oxide, and 13 other elements that make up the group of seventeen rare earth metals will likely outstrip supply at least until 2015. Further, as supplies continue to be tight and consumer and business demand for everyday products, including clean technologies, remain robust, prices for rare earth metals will likely remain high, yet volatile for several years.
  • Demergers among integrated international oil companies to continue. The report suggests that for the last fifty years, the vertically integrated oil & gas company model has reigned supreme. By owning all parts of the value chain, companies are able to control the entire spectrum of activity. This model has served the industry well but some are challenging the status quo by splitting their upstream and downstream operations into separate units. The report looks at whether this new activity makes sense and if there are likely to be additional splits or demergers over the near term.
  • The coming energy breakthroughs using nanotechnologies. The report suggests that nanotechnology research will continue unabated over the long term with some economists predicting a US$1 trillion global market for nanoproducts over the next 10 to 15 years. A market this large will have implications for the energy sector: Roof-top solar panels could become obsolete simply by converting sunlight into electricity via a paint-like substance that can be sprayed on rooftops. Researchers have already proven that nanocrystals could be as efficient as the most expensive solar cells, for a fraction of the cost.
  • The ‘Golden Age of Gas’ for future natural gas markets. According to the report, gas will become the fuel of choice for several reasons: tightening environmental regulations, expectations of ample supply at competitive prices, and the need to back up intermittent renewable sources such as wind and solar to ensure reliability.
  • The corporate water footprint: the next ‘tipping point’ for energy companies. According to a recent Globescan/Circle of Blue survey, water-related themes represented the number one and number two concerns identified, with even climate change ranked sixth. The report outlines steps that energy and resources companies can take now to seize control of their water footprint.
  • Who owns the Arctic and the South China Sea? Oil and gas companies have always dealt with risk, but recent events in the South China Sea demonstrate how geopolitical risks pose problems for the oil and gas industry. The report suggests that geopolitical risks are becoming a way of life for these companies. Increasing consumption and demand of natural resources has led companies searching for new reserves to begin exploration of areas without well-defined borders where geopolitical disputes could be imminent, specifically the South China Sea and the Arctic. The report suggests that whilst there are risks to establishing operations in these areas, the potential rewards could be immense.
  • Solar-enhanced oil recovery. Whilst still in its infancy, solar-enhanced oil recovery has the potential of revolutionising enhanced oil recovery due to the low estimated cost of glasshouses and the price of producing steam, according to the report. The technology is expected to show the most promise in areas where there is an abundance of sunlight and oil is heavy in nature.
  • Energy use and the great recession of 2008-2009. The report suggests that the energy marketplace has changed as a result of the recession of 2008-2009 and the continued slow economic growth in many parts of the world. The report outlines some of the key findings of the Deloitte reSources 2011 Study, a nationwide study conducted by Deloitte United States and strategy and market research firm, Harrison Group. The study provides insights to help organisations make energy-related investment and business decisions. The study gauges US customer interest, perception and receptiveness across regions and demographics regarding tactics for managing energy, smart technologies, electric vehicles, the environment and climate change.
  • The future of oil field services. Based on 40 Deloitte interviews with executives of offshore oil & gas companies across all continents and all stages of the value chain, the report predicts that the complexity of the offshore value chain will continue to grow substantially in the next decade and increasing complexity may very well trigger a new round of industry consolidation. The report outlines four factors that it suggests will drive this trend.
  • Piracy on the high seas. Piracy has taken on a whole new meaning in the 21st Century. Instead of swords, pirate ships and chests of gold, it is machine guns, speedboats and large oil tankers. With 20% of the world’s commercial shipping passing through the Gulf of Aden and the Suez Canal, piracy has a big impact on economies, especially in Europe. The report outlines the financial impact of piracy on oil and shipping balance sheets.

To view the report, please visit www.deloitte.com/energypredictions2012

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