Major Changes in World Oil, Gas Markets: Report

Friday, August 29th, 2014
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Changes in the world order of production, shifting demand for cleaner fuels and the need for new megaproject management strategies are a number of key issues confronting oil and gas producers around the world and in Australia, a new report says.

Launching its Oil and Gas Reality Check 2014, Deloitte Access Economics says global markets for oil and gas are evolving on a number of fronts, some of which would affect Australia as an increasingly important exporting nation.

“Another year has brought further changes to the global oil and gas industry’s fundamentals, including expansion and contraction on a number of fronts,” Deloitte Australia Consulting partner and national Oil and Gas Leader Mike Lynn said.

“These issues are certainly relevant from a local perspective. Australia will soon find itself in close competition with its key strategic ally, the United States, for future energy markets in China. We are a world leader in LNG megaproject execution, and we are emerging as an energy exporting nation.”

In its report, Deloitte argues the extent of transformation involved in unlocking America’s shale formations, with the country’s oil production volumes having risen by 50 percent over the five years to 2013 and the nation expected to be a net exporter of gas by the end of the decade, cannot possibly be underestimated.

Not only has this created an enormous boon for America’s economy as the availability of cheap domestic gas has made its local manufacturing sector more competitive, it is also having significant political ramifications in terms of America no longer being dependent on the Middle East for oil and the prospect of either America opening up its shale gas reserves (though LNG) for export or a similar shale gas boom in the United Kingdom, Poland, Romania and Ukraine reducing European reliance on Russia for oil.

Furthermore, along with America, the increasing prominence of countries like Canada, Mexico, Brazil and Kazakhstan as producers is reshaping global markets and forcing traditional suppliers to compete more aggressively in order to maintain market share.

Moreover, outside of Asia – where insufficient pipeline and distribution networks and expense of importation of natural gas mean heavy reliance on coal is likely to continue – a push toward  less environmentally destructive fuels is being driven not only by advances in shale but also, in some cases, government policy.

Europe, for example, wants 20 percent of its energy mix to come from clean sources by 2020.

Fourth, Deloitte reports describes a new energy nationalism being driven by greed for markets amongst former and emerging exporters and fear about energy security among nations with substantial demand, which it says has seen more liberal countries become nervous about foreign government owned companies taking control of resources notwithstanding the fact that recent years have seen some long restrictive borders open up.

Canada, for instance, banned further national government ownership of resources following the Petronas purchase of a Canadian gas producer and the CNOOC acquisition of Nexen, whilst the US also opposes selling its shale resources outright.

Finally, greater levels of technical risk and operational challenge associated with ‘new age’ projects (LNG, gas-to-liquids (GLT) deepwater and Artic , shale, tight oil, oil sands in Canada etc.) is necessitating higher levels of diligence in project management and ‘megaproject’ management approaches including lean project management; integration of owners, engineers, contractors and major suppliers into project teams, or ‘integrated project delivery’; the development of systems to provide enhanced ‘real time’ insight into project statuses so that problems can be identified in time to implement mitigation strategies and most importantly; dedicating  more resources to planning and design.

Nowhere can this be seen more clearly that in Australia, where the $US37 billion Gorgon LNG Project reported cost blowouts of 40 percent and delays of up to one year.

ExxonMobil Arctic and Eastern Canada vice president Jim Flood said the importance of planning cannot be overstated.

“All of us feel time pressure to get first production,” he said.

“(But) if you don’t get the engineering right, you don’t get the procurement right, then you impact fabrication.

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