Skip to main content

Editorial comment

It feels a little bit early to be writing a predictions comment, I usually save that for the December or January issue, but throughout October I was drawn to reports and press releases discussing what is coming up next for the oil and gas industry. The IEA has been confident in its predictions for the future as it said in the Medium Term Oil Market Report that the ‘global map of oil refining and trade [is] to be redrawn over [the] next five years’. It looks like this could well be the case when one looks at developments within the oil and gas industry throughout 2012. However, Chatham House said in a recent report, What next for the oil and gas industry?, ‘the future cannot be predicted with any confidence, especially while the present economic difficulties persist’. Yet, despite Chatham House’s statement, to me at least, it does appear that the oil and gas industry is heading for change because of a few shifts in dynamic.

Register for a free trial »
Get started absolutely FREE in 2 minutes, no credit card required.

An area that will no doubt see adjustments is one that I have discussed already this year, the transport sector (so I will not linger). Oil and gas are predicted to no longer dominate transport fuels as biofuels come into play and vehicles become more efficient due to emissions policies and the price of oil. Not only that, but with the advancing age of the population and the diminishing number of private vehicles on the road, in the west in particular, the portion of the transport market available to the industry is shrinking and is forecast to continue to do so.

An alteration in trading patterns as well as production appears to be on the cards. Demand for oil and gas in developed countries has begun to hit a plateau, to such an extent that refineries in Europe in particular are shutting down and being taken offline. Investments are moving towards oil substitutes and emissions reduction technology in all business areas, not just that of the oil and gas sector which is also contributing to lower levels of production and processing. Also, investments in the downstream sectors of developed countries are plummeting, as they are deemed no growth areas. Trade routes are shifting east towards ever expanding Asia. The region is growing at such a rate that it can no longer support the domestic demand for refined products. This is where the Middle East will continue to fill the gap and divert supply from the US and Europe to its Asian neighbours.

The move east also brings up the debate of energy security, as redirection of supply will impact not only resource availability but also prices. However, over the last 12 months unrest in several supply countries such as Libya and Bahrain has already forced contingency plans to be tried and tested. Also, with the US shale gas phenomenon and increasing investments in LNG, Middle Eastern supply may not be missed as much as some may think.

The changing shape of the oil and gas industry will of course not be welcomed by all, as an industry with such a long, rich and complex history is going to take a while to adapt and it may also prove to be costly. However, in this fast paced society we live in, change is inevitable be it as predicted or not.