Oil and Gas Reality Check 2015
A look at the top issues facing the oil and gas sector
What a difference a year makes. Last year, we examined industry fundamentals ranging from prevailing macroeconomic conditions, the supply‑demand balance and regulatory constructs to cost components, commodity prices and the impact of geopolitics. Stemming from that analysis, we considered the waxing and waning of dominance among suppliers; the progression from regionalisation to globalisation in natural gas markets and the reverse in oil markets; a shift in the global energy mix; the swelling of capital projects to “mega” proportions; and a move towards greater interdependencies among nations.
This year, however, virtually all of these ‘fundamentals’ are being called into question. Certainly, declining oil prices have taken a toll on the global oil and gas industry. In December 2014, West Texas Intermediate crude prices dropped from over $100 per barrel to less than $60 per barrel, with Brent oil prices following suit. The slide continued into 2015, dipping below $45 per barrel before making a modest recovery. The glut of oil amid lagging world demand is altering trade flows and raising concerns for traditional suppliers.
Predictions for the global energy trade are also evolving. Rather than seeing rampant globalisation, natural gas and LNG supply is being consumed closer to source – at least for the time being. As buyers gain greater control than sellers over LNG prices, long-term contracts are being renegotiated and the construction of new LNG terminals is slowing. The unchecked growth of megaprojects is also losing speed as international energy companies scramble to cut costs.
This report takes a look at six of the issues currently impacting the oil and gas industry (and the upstream market in particular). Although by no means a definitive list, these issues include an anticipated shift in supply‑demand fundamentals, the emergence of new trading patterns, consideration of OPEC’s role in the market – at least over the short-term, falling LNG prices, the long-term costs of complex projects and evolving dynamics between integrated oil companies and national oil companies. Drawing on research and the views and opinions of our oil and gas team globally, this report aims to provide you with food for thought, while encouraging healthy debate and discussion.