Table of Contents
Despite the increasing affinity towards alternate energy sources, oil and gas (O&G) will remain the major source for power generation in the long term accounting for more than 50% of total primary energy consumption in 2030.
The upstream O&G sector will be driven by the global shale revolution. Most of the market will continue to be in North America where technological investment will increase output. Shale O&G production will gradually lead to massive decline in O&G prices.
The midstream O&G sector will be driven by internationalisation of liquified natural gas (LNG) trade. Asia will emerge as the largest consumer of LNG while the shale revolution in North America will convert the region into a net exporter of liquefied gas.
The downstream O&G sector will be driven by improvements in refinery margins that are directly impacted by end-user demand, crude oil prices, and utilization ratios. Companies are looking at restructuring strategies to offer differentiated products for end users.
Optimised drilling strategies, operational excellence, and cost reduction are key priorities for O&G companies across the entire value chain. Geopolitical equations and economic legislations will continue to impact fluctuations in O&G prices.
Population growth, shifts in the economic power, and energy consumption are the key Mega Trends driving global industry demand.
Developing markets of Asia-Pacific, Latin America, and the Middle East will be the largest consumers of O&G.
Unconventional O&G will play an important role in altering the global fuel fix and international trade patterns.
Technological advancements and innovations across the value chain will positively improve the reserve-recovery ratio.
Exploration and production (E&P) investments in deepwater drilling and subsea hydrocarbons will improve returns from offshore reserves.
Trade is set to increase with extensive globalisation of the LNG market.
Development: As a result of the shale gas boom in the United States, existing LNG infrastructure has been converted into export facilities along with increased investments in terminals and pipelines. Most of the LNG cargoes are being largely diverted to higher demand markets in the Pacific Basin and Latin America. Instability in North Africa, especially in Nigeria, Sudan, and Egypt has also led to increased exports to the Asia-Pacific region. Almost ..% of the traded LNG in 2015 will be consumed by the Asian markets, particularly Japan, South Korea, and China.
Implication: The global demand for LNG will therefore remain high. Nuclear outages in South Korea and rapidly rising gas demand in China were the strongest growth factors for LNG, though this was more than offset by continued decline in the United Kingdom and Spain, where competition from coal and renewables took centre stage. About .. billion cubic meters (bcm) of LNG was imported globally in 2013; this is estimated to reach .. bcm by 2018.
Shale investments will increase unconventional gas production
Development: The North American shale revolution has changed the future of the global O&G industry. The United States is optimistic about a greater energy sufficiency and resurgence of its industrial sector. Technological advancements and investor optimism have also contributed to greater output of unconventional ‘tight oil’ and shale gas. The shale gas boom has contributed to increased LNG trade globally. The United States is set to switch from being an import destination to becoming an important exporter of LNG. Increased outputs from shale plays will also impact production of natural gas liquids.
Implication: The US chemical and petrochemical industry is set for a revival. Asia-Pacific will become the largest importer of gas. There are prospects for higher market growth as shale gas exploitation is pursued across other parts of the world. Investments in new pipelines will start to pick up, and this will require greater technology investments beyond 2015.
Efficient deepwater exploration is likely to boost O&G recovery ratios.
Development: Technological investments and resilience of the O&G sector have attracted innovative E&P at depths of more than ..feet, such as deepwater and ultra-deepwater drilling, and arctic explorations. The 2010 deepwater disaster in the Gulf of Mexico cost BP nearly $.. billion as fines and raised concerns about safety risks; however, global deepwater drilling has enabled E&P companies to venture out and explore potential reserves across other regions. Technology has played a critical role to facilitate these investments. The number of deepwater wells has steadily grown at a CAGR of ..% over the last ..years.
Implication: This attractive capital-intensive market is poised for further growth thus creating an attractive investment opportunity for O&G participants across the value chain. Deepwater exploration contributed to almost ..% of potential hydrocarbon reserves in 2013, while capital investments are likely to contribute..% to the total E&P spending between 2013-2025.
Refinery expansion will stabilise due to overcapacity in the market.
Development: Adoption of biofuels and electric vehicles has led to a decline in refinery utilisation in developed countries. Most of the refinery demand has therefore shifted to the emerging markets of Asia-Pacific. National oil companies (NOCs) are aggressively increasing market shares across Asia, the Middle East and Africa while international oil companies (IOCs) and independents are now keen to improve operational efficiency and reduce cost to compete in the global market.
Implication: In North America and Europe, industry overcapacity and high oil prices have squeezed margins across the downstream value chain. Capacity additions in the emerging markets have put downward pressure on margins. Companies such as Total Refineries, BP, and PetroChina have cut back on their investments as the market is oversupplied and experiencing declining fuel demand.
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