Shale gas is set to remain a largely regional resource over the next three years, with an uncertain global impact due to the increased technical challenges and higher development costs of the resource. The outlook is a key finding of Deloitte’s global Oil and Gas Reality Check 2013.
Deloitte Australia Consulting Partner and National Oil and Gas Leader Mike Lynn, said that the report finds that, despite considerable market changes, increased complexities and new resource opportunities, there was a need for the sector to return to industry fundamentals.
“The industry needs to focus on its key fundamentals, including supply, demand, macroeconomic, regulatory, cost price and competitive behaviour factors to understand the future direction of the oil and gas sector,” he said.
“It has evolved to a point where market complexity is best managed through diversification of companies, partnerships, and flexible business models.
“In fact, even the industry’s latest primary game-changer, shale gas, will likely have a reduced global impact and become a more regional resource, with some countries able to export surplus gas via liquid natural gas (LNG).
“LNG pricing will become more complex using various pricing models, and the impact of LNG exports on the global market will depend on countries’ resource policies, which ebb and flow as production increases. As a result, national oil company and international oil company partnerships grow in importance.”
The Oil and Gas Reality Check 2013 report focuses on a number of key challenges facing the industry.
Shale gas: The success of North American shale gas has spurred interest in other countries which have, however, a long road ahead before they begin to see the gas volumes and supporting infrastructure needed to dramatically lower domestic natural gas prices. Given the greater technical challenge of shale gas and higher development costs, exploitation of shale resources is not easily replicable in other markets. Some countries are making progress, but over the next three years, shale gas will remain a largely regional resource with an uncertain impact on the global market.
In Australia, strong progress is being made in unconventional gas projects, including coal seam gas operations being developed in Queensland.
LNG pricing: Oil indexation will be one of several pricing approaches for LNG long-term contracts in the Asia Pacific region. As diverse supplies enter the LNG market over the next 12 months through to 2017, the dynamics of supply competition will a drive transition away from contracts purely indexed to oil prices and at high oil price parity.
Resource nationalism: In the short term, resource nationalism will recede as new resource-rich countries seek to attract investment and access technology. Investors and global oil and gas companies view resource nationalism as an unmanageable risk. In the long term, resource nationalism will rise as countries progress through the stages of resource development and gain technological expertise.
National oil company (NOC) expansion: – NOCs are evolving their global expansion by competing for complex barrels. While this global expansion is not a new story, the fact that expansion strategies differ between oil and gas is a recent and important development. NOCs have evolved from players focused on production in domestic oil resources to becoming interested in unconventional oil and gas as well as previously stranded reserves that are now commercially attractive through advancements in technology.
Managing market complexity: The direction in which US medium-size integrated companies, supermajors, and NOCs have evolved shows that vertical integration, as the winning business model in the oil sector, is far from becoming a market certainty. Uncertainty is the order of the day, and how companies react to and deal with this uncertainty is changing the notion of a singular business model and giving rise to different models.
LNG World News Staff, May 24, 2013; Image: Deloitte