KBC outlook overviews

World long term oil and energy outlook

  • Energy demand continues to surge relentlessly, particularly in rapidly industrialising nations in Asia Pacific, the Middle East, Africa and Latin America.
  • Even with a predicted rising share of renewables in sectors such as power generation, KBC forecasts that oil and gas will remain dominant in the energy mix to 2040, supported by strong demand growth for transportation fuels in highly populated countries such as China and India.
  • Upstream there is a much needed focus on programmes of radical change to deliver projects on schedule and budget.
  • Project delivery discipline upstream, will be essential to weathering a lower crude oil price environment.
  • The outlook for conventional crude oil supply, the development of unconventional sources such as oil sands and shale oil and gas, and the ever present prospect of rapid innovation and technological change, all make the future challenging.
  • While investment will continue in conventional fields, a reduction in export revenues due to the oil price drop and inertia behind energy subsidy programmes will limit national producers’ capacity to raise output in line with their aspirations.
  • Increased competition, tight margins, tighter environmental standards and shifting demand profiles are reshaping the downstream industry.
  • Project delivery discipline following robust project feasibility development is required, in addition to achieving maximum value from existing assets.
  • The availability of financing for the huge upstream and downstream investments required is a key theme.
  • Weather upstream or downstream the complexity of today’s projects requires resources with a sophisticated skill set.
  • Attracting the right calibre of people and developing their skills to meet the technical and economic challenges of today’s mega projects and those of the future will be key for the success of the energy industry in the years ahead.

Outlook for the world refining industry

  • The global refining system is coming to grips with the steadily worsening economics of over capacity.
  • Refineries have continued to close and further closures are anticipated as the market contends with a strong wave of new capacity additions.
  • North American refining is advantaged by significant supply growth, large discounts on domestic grades, and substantial energy cost advantage.
  • Russian refiners are about to enter their new era of refinery upgrades.
  • New Middle Eastern capacity benefits from variable crude oil pricing that helps these assets chase differential margin between markets, enduring that any pricing advantage to East or West can be captured.
  • Refineries under pressure continue to face difficult decisions: Invest in reconfiguration to stay relevant to their local markets? Continue to fund stay in business regulatory investment aimed at improving their energy efficiency and decreasing their carbon footprint?

Gas

  • Growth in global gas demand is struggling.
  • The tightening of spot LNG markets post Fukushima has been painful for Asian buyers in particular, and the resultant period of sustained high prices looks to have taken its toll on Asia’s appetite for gas.
  • The combination of weaker gas demand and weather related impacts saw the premium in Asian spot LNG markets erode for the first time in 2014.
  • Asian spot LNG prices have converged with European hub prices for the first time since 2010.
  • In Europe, the world’s other major importing region, gas demand also continues to lose ground.
  • In 2014, the Russia-Ukraine crisis and resultant cancellation of the South Stream pipeline project has important implications for the long term energy security of Europe.
  • Unconventional gas production in the US continues to grow, as technological advances continue to drive down marginal operating costs.
  • Interestingly the economics of exports from sanctioned projects are questionable at current inter regional price spreads, and one must consider the impact on projects which have not yet gained a final investment decision.

Edited from report briefs by Claira Lloyd

Published on 17/03/2015


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