‘Current price fluctuations may not impact industry trajectory’

The cyclicality of the oil and gas industry is unlikely to impact the long term trajectory of the sector, but may speed up some of the trends that were already unfolding, according to the Oil and Gas Reality Check 2015 report of Deloitte Touche Tohmatsu Limited (DTTL).

The report outlines six of the 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).

DTTL’s Global Oil and Gas Leader, Anton Botes, said: “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.”

Commenting on the Shift in supply-demand fundamentals, it stated that fluctuating industry dynamics are fuelling a power play between traditional and new oil suppliers. For example, the United States 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.

The report further stated: “As oil and gas supply and demand fundamentals continue to evolve, new global trading patterns are emerging.

“As relations between emerging trading blocs strengthen, Organisation of Petroleum Exporting Countries (OPEC) may look to expand its share of the Western European market. This would not, however, be a self-sustaining strategy. In 2013, almost 60 per cent of OPEC’s crude oil exports went to Asia, and European consumption could not replace this volume.

“The Organisation of Petroleum Exporting Countries (OPEC) currently supplies approximately 32 per cent of the world’s crude oil, however, its oil market share will fall by five per cent by 2018 as the supply of United States tight oil picks up.

“While that share may recover over the long term as supply patterns shift (particularly if US production flattens), OPEC will cede power in the interim,” it noted.