21 July 2015, Lagos – Despite price fluctuations, the undulating nature of the oil and gas industry is not likely to impact the sector in the long term, though the fluctuations may accelerate emerging trends in the industry, according to Deloitte Touche Tohmatsu Limited’s (Deloitte) Oil and Gas Reality Check 2015 report.
The Deloitte report lists six major issues currently impacting the oil and gas industry (and the upstream market in particular). These issues include an anticipated shift in supply-demand fundamentals, the emergence of new trading patterns, consideration of OPEC’s role in the market, falling LNG prices, the long-term costs of complex projects and evolving dynamics between integrated oil companies (IOCs) and national oil companies (NOCs).
According to Anton Botes, Global Oil & Gas Leader at Deloitte: “The oil and gas industry has been built on long-term investments and has successfully emerged from cyclical downturns in the past. As these trends play out, companies across the board need to adapt and remain agile to emerge a leaner, fitter business. At the same time, it’s worth remembering that weaker price signals spur innovation. With that in mind, it’s not unreasonable to expect that lagging oil prices will spur greater innovation.”
The report highlights the following key trends:
Shift in supply-demand fundamentals: Fluctuating industry dynamics are fueling a power play between traditional and new oil suppliers. The US continues to maintain its place as a major producer of both oil and gas, while historical energy trade patterns are shifting. With the loss of the United States as an anchor market, the world’s major oil suppliers are searching for new buyers.
lNew trading patterns emerging: As oil and gas supply and demand fundamentals continue to evolve, new global trading patterns are emerging. As relations between emerging trading blocs strengthen, OPEC may look to expand its share of the Western European market. This would not, however, be a self_sustaining strategy.
OPEC: under pressure: The OPEC organization currently supplies approximately 32% of the world’s crude oil. However, OPEC’s oil market share will fall by 5% by 2018 as the supply of US tight oil picks up.
LNG prices: a buyer’s market: The price of LNG was once a model for stability, it is less so now. Until prices stabilize, natural gas will trade in more geographically proximate regions. The most cost efficient producers are the ones most likely to win global market share, especially as supply-demand economics kick in.
Investing in innovation: the cost of complexity: Capital spending is likely to fall off in the near term; however megaprojects will still be required to meet long_term global energy demand. To avoid the cost and time overruns that have typically characterized these projects, companies will likely want to explore a range of strategies, including pre-project planning, integrated project delivery, lean project management, modularization and talent management. They may also want to invest in advanced analytics to enable agile project monitoring and evaluation.