Energy Industry Trends Review – February – April 2009

Is the current recession shaped like a “U, “V” or “W”? In other words, will we have a quick return to economic growth following a short, shallow downturn (V-shaped), or a much slower return, following a deeper, more prolonged period of uncertainty (U-shaped), or even a “double-dip” recession, with equally prolonged effects? And what is the significance of each type for the energy industry?

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Key global trends impacting the energy sector in the current economic climate are examined. These include:

• Economic outlook. World economic growth is expected to contract by 1.3 percent in 2009.
  
  
• Global oil supply. Global supply has fallen by more than 3 million barrels per day compared to one year ago.
  
  
• Oil demand. Demand has fallen by a similar amount and is expected to continue to fall.
  
  
• Gas supply. US and European indigenous production is expected to fall this year, with LNG starting to play an increasingly important role in overall gas supply to these regions.
  
  
• Gas demand. Short-term gas demand continues to be weak due to the recession.
  
  
• Gas price. US and Asian gas prices remain weak, while European gas prices are low, with forward prices showing some signs of recovery.
  
  
• Refining. The combined effects of lower prices and reduced demand have led to worsening margins in this quarter compared to last.
  
  
• Mergers and acquisitions. The surge in mergers and acquisitions activity has not materialized, but significant deals are coming through reflecting key concerns in the market such as project costs, access to reserves and access to key product markets.
  
  
• Rig count. While the number of operated rigs continues to fall, overall, the drop in offshore rig activity has not been marked.
  
  
• Company trends. Oil and gas companies’ first-quarter results were as expected down on both the first and fourth quarters of 2008, reflecting the affects of lower oil prices.