EY has said that at the moment geopolitical unrest is having an impact on global oil markets that are ‘bringing a sigh of relief’ from unconventional oil producers in North America. As the industry moved from a relatively strong winter season, fears have been building in an unconventional sector that is already low on cash and supply growth putting downward pressure on prices has also been a source of concern. However, EY has said that with fleeting signs of political progress in Libya and oil exports remaining severely constricted, there are few signs of progress in the near term. And at the same time, Sunni jihadists are threatening a new civil war in Iraq, which is putting the aggressive production growth figures for the Iraq oil industry at risk.
EY has said that the North American natural gas markets are bolstered by the recent cold weather, in the form of the arctic vortex, that has brought natural gas storage levels to record lows, and that despite the seasonal fall off in demand, below normal storage levels are continuing to support production growth and prices. In the most recent quarter, EY have reported that the North American gas industry has recognised the US Supreme Court’s support for the Environmental Protection Agency’s carbon reduction strategy, and the efforts of Congress and the US Department of Energy to speed up LNG export project approvals.
When it comes to Mexico, the road to energy reform is continuing but there are delays in Mexican Congress that EY expect to impact the implementation of the reforms. Deborah Byers, Oil & Gas Leader, EY LLP said, ‘this is an exciting time for the energy industry with a lot of investment opportunities being pursued by players from across the industry and beyond. The industry remains confident and upbeat around the potential opportunities.’
In the second quarter of this year, EY has reported that global oil prices moved higher, supported by the increase in geopolitical risk and despite strong North American supply gains. Markets around the world have tightened in the same quarter, as supply growth out of North America has been minimal, and global demand growth has been expected to remain modest with the rebound in growth. Byers noted, ‘we are seeing a ratcheting up of most price forecasts, reflecting not just the increase costs of development and production, but also a more robust view of oil demand growth, and most critically, the deteriorating outlook for Libyan and Iraqi production growth.’ Also, EY has pointed out that Iraq has been forecast to be the largest source of oil production growth over the period to 2025, but, with the increasing unrest and uncertainty, those growth expectations are being challenged.
Looking at gas, EY has said that US producers are still taking support from the storage deficit, regardless of the strong production gains from Marcellus and Utica Shale formations. Gas prices are going to need to remain reasonably high in order to incentivise a storage build this summer, however, EY have said that at the same time, the higher prices will most likely slow the switch from coal to gas in the power sector.
During the second quarter, EY have reported that as gasoline prices have moved up seasonally and distillate prices have moderated slightly, refiner margins have increased, despite the upward crude price pressure. Cracking margins on a NYMEX 3-2-1 basis have been reported by EY to average almost US$ 22.50 /bbl in the second quarter, an increase of approximately US$ 1 /bbl from the average seen in the first quarter of the year. Finally, when it comes to downstream, EY reported that average margins were up for the quarter across all the refining areas, with margins in the US Midwest continuing to be strong.
Adapted by Claira Lloyd
Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/28072014/ey-geopolitics-and-hydrocarbons/