Top Trends in the Oil and Gas Sector

Abstract

Management The past 12 to 18 months witnessed the oil and gas sector drifting away from the rule of certainty and the return of uncertainty. Uncertainty required more focus, deeper analysis, and operational determination. Deloitte’s fourth annual Oil & Gas Reality Check identifies five trends and delves into the fundamental characteristics of each trend: the supply, demand, macroeconomic, regulatory, cost, price, and competitive behavior factors. Given the rise of shale gas resources and with new countries entering the ranks of net energy exporters, some are proclaiming that a global revolution is at hand with fundamental shifts in energy geopolitics because of newly found energy independence. A closer examination of the development progress of countries with major shale gas resources reveals a vastly different picture. Countries that can commercially produce unconventional and conventional gas seek higher returns by exporting or planning to export liquefied natural gas (LNG) to Asia Pacific countries that have historically agreed to long-term purchase contracts at oil indexed prices. The expected increase and diversity of LNG supply is spurring transition away from oil price indexation, and the rise of gas hub and hybrid price indexation. The discovery of new resources across various geographies coupled with the technical challenges of developing those resources are softening governments’ resource policies—an indicator of the degree of resource nationalism. As production efficiency rates and capabilities improve, will resource national-ism surge or will it pale in comparison with the competitive rise of national oil companies (NOCs)? How companies react to and deal with this uncertainty is changing the notion of a singular business model and giving rise to different business models. Each of these questions and the five trends are discussed below: Shale gas: A global or regional resource? The success of North American shale gas has created interest in duplicating the results in other countries. An April 2011 study by the US Energy Information Administration estimated that world shale technically recoverable resources outside the United States were 5,760 Tcf, sparking widespread interest in international shale. However, the presence of shale gas in the ground does not guarantee the unearthing of a fortune.