Energy Industry Trends Review: Issue 18 - 2011

With the outlook for upstream oil and gas still looking strong, infrastructure challenges are big concerns for the growth picture in some key markets, particularly in North America. There have been several significant infrastructure deals in North America this quarter; such deals are a clear indication that infrastructure is back in focus as oil and gas companies position themselves for the next wave of change in the industry.

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

• Economic outlook. Global gross domestic product growth will moderate to around 4 percent through 2012, from more than 5 percent in 2010.
  
  
• Oil supply. Global oil supply rose by 1 million barrels/day to 89.3 million barrels/day in October 2011 from September, driven by recovering non-Organization of Petroleum Exporting Countries (OPEC) output.
  
  
• Oil demand. Global oil demand is expected to rise to 89.2 million barrels/day in 2011 and reach 90.5 million barrels/day in 2012.
  
  
• Oil price. Oil prices over the past quarter have been characterized by extreme volatility and futures price movements are currently showing 95 percent correlation with financial market movements since July.
  
  
• Gas supply. Global gas production is expected to continue to increase and meet future demand with further exploration and development of unconventional gas notably in the United States, which is now progressing with its plans to export liquefied natural gas (LNG).
  
  
• Gas demand. Short-term gas demand continues to vary significantly by region, with significant demand still evident in Asia, notably Japan and Russia, but with Europe and North America still showing weaker demand due to milder autumn weather conditions and the continuing weak economic outlook.
  
  
• Gas price. Gas prices for most markets are expected to increase next year over 2011, due to better demand; the US market remains an exception due to the continued robust supply situation and weak demand.
  
  
• Refining. Global refinery crude runs were averaging 75.5 million b/d in third quarter 2011. Global refinery crude estimates for fourth quarter 2011 have been revised lower for most regions due to shutdowns and seasonal maintenance in Europe, disruptions to refinery operations and unscheduled stoppage in Asia as well as seasonal maintenance in the United States. 
  
  
• Mergers and acquisitions. Oil price and market volatility has led to a decline in oil and gas merger and acquisition (M&A) activity, now at its lowest level since 2008; North America continues to be the focus of the largest deals, with focus on the unconventional oil and gas sector still strong.
  
  
• Rig activity. The rig market continues to look buoyant as the continued high oil price drives upstream activity. The number of oil rigs in the United States exceeded 2,000 as of the beginning of November 2011, and US drilling activity has finally surpassed pre-crisis highs in October. 
  
  
• Companies. Higher oil and gas prices once again contributed to higher profits for the integrated oil majors during the third quarter of 2011, even though asset sales, geopolitical problems and maintenance turnarounds led to another decline in production.