Following a year of slow economic recovery, unstable price fluctuations and damaging incidents in the Gulf of Mexico and China, the oil and gas industry is predicting a healthy investment in new exploration and market opportunities in the Middle East over the next 12 months, a new report on the future of the sector reveals.
Deep water ahead? The outlook for the oil and gas industry in 2011 has been published by the Economist Intelligence Unit and is sponsored by GL Noble Denton, an independent technical adviser to the industry with considerable insight into many of the issues faced.
Despite concerns over tougher industry regulation and increased operating costs, the 194 board-level executives and policymakers from some of the industry’s leading international companies surveyed for the report are optimistic that 2011 will be a key turning point for industry growth, thanks to a period of relative price stability, particularly in the fast-growth economies in Asia.
Key findings from the research, as reported by the Economist Intelligence Unit, include:
A new breed of Asian international NOCs (INOCs) are emerging as strong competition to Middle Eastern operators. INOCs have an explicit mandate to develop international resources to meet domestic needs. They boast healthy cash flows, self-sufficient integrated operations and already operate in a similar way to IOCs. While the traditional NOC, as seen in large parts of the Middle East, is still focused on developing the domestic resource base where it holds a monopoly, INOCs have become a disruptive competitor in recent years.
Natural gas has emerged as a key industry “game changer”. LNG reserves in Qatar to play a key role. Natural gas has gained widespread credibility as a relatively low-carbon “transition fuel”, especially for electricity generation. Global demand for liquefied natural gas (LNG) has grown as countries in Asia and Europe have sought to increase their supply options. However, both the recession and the sense of abundant supply have depressed natural gas prices.
Asia is an emerging market for the oil and gas industry, for both demand and supply. Industry investment remains on track, with 58% of respondents seeing the greatest opportunities coming from South-east Asia, China and the Far East this year. North America is the next significant region, identified by 30% of respondents. However, strong growth for the Middle East is forecast.
Increased exploitation of Iraqi crude oil in the next five years will temper rising prices and could lead to a shortage of manpower and services
Companies expect regulatory change in the wake of the Gulf of Mexico disaster—but its precise impact is less clear. 72% of respondents expect regulation to become tougher in North America, and a substantial majority expect that costs will increase globally. The longer-term impact of Macondo will be on companies’ operational strategy, especially as their safety record will become a more important factor in gaining access to global reserves.
John Wishart, President of GL Noble Denton, said: “This report helps to bring clarity to a sector that has faced significant challenges in recent years. While it forecasts an upturn in growth with guarded confidence, the industry must concentrate on overcoming significant technical challenges if the market is to pick up dramatically.
“The demand for energy is taking the exploration, production and distribution of oil and gas to even tougher extremes of geography and climate, and pushing the boundaries of the industry’s technical knowledge to its very limits. Against this backdrop, key players in the industry will need to find more innovative solutions to mitigate risk, while operating more efficiently and sustainably. Their success will define their position and reputation in the market this year.”
Tony McAuley, Managing Director, Energy, at the Economist Intelligence Unit said: “The inaugural oil and gas barometer takes the pulse of senior executives at a challenging time for the industry. New risks are emerging, and ‘black swan’ events like the Gulf disaster have shown that the operating environment and the perception of risk can change seemingly overnight.
“But our survey shows that there is room for optimism too. Companies are prepared to invest for the future, and meet new safety and environmental standards. There is an appreciation that the industry must do its bit to reform, yet there is equally a clear message that policymakers must not allow knee-jerk reactions to influence regulations.”
