PERTH (miningweekly.com) – Despite the resources sector’s optimism, shale gas was expected to remain a largely regional resource over the next three years, with an uncertain global impact as a result of the increased technical challenges and higher development costs of the resource, advisory firm Deloitte predicted this week in its global 'Oil and Gas Reality Check 2013' report.
Deloitte Australia consulting partner and national oil and gas leader Mike Lynn pointed out that the success of North American shale gas had spurred interest in other countries, which had a long road ahead before they would start to see the gas volumes and supporting infrastructure needed to dramatically lower domestic natural gas prices.
Given the greater technical challenge of shale gas and higher development costs, the exploitation of shale resources was not easily replicable in other markets, he warned.
In Australia, strong progress was being made in unconventional gas projects, including coal seam gas operations being developed in Queensland.
Lynn said that, despite considerable market changes, increased complexities and new resource opportunities, there was a need for the sector to return to industry fundamentals.
“The industry needs to focus on its key fundamentals, including supply, demand, macroeconomic, regulatory, cost price and competitive behaviour factors to understand the future direction of the oil and gas sector.
“It has evolved to a point where market complexity is best managed through the diversification of companies, partnerships and flexible business models,” he stated.
Lynn said that even the industry’s latest primary game-changer – shale gas – would likely have a reduced global impact and become a more regional resource, with some countries able to export surplus gas through liquefied natural gas (LNG).
“LNG pricing will become more complex using various pricing models and the impact of LNG exports on the global market will depend on countries’ resource policies, which ebb and flow as production increases.”
As a result, partnerships between national oil companies (NOCs) and international oil companies would grow in importance, he added.
Oil indexation would be one of several pricing approaches for LNG long-term contracts in the Asia-Pacific region, Lynn said.
“As diverse supplies enter the LNG market over the next 12 months through to 2017, the dynamics of supply competition will drive transition away from contracts purely indexed to oil prices and at high oil price parity,” he added.
Meanwhile, the report also pointed out a number of key challenges facing the oil and gas industry, including resource nationalism, NOC expansions and market complexities.
Deloitte noted that, in the short term, resource nationalism would recede as new resource-rich countries sought to attract investment and access technology.
The investment firm added, however, that investors and global oil and gas companies viewed resource nationalism as an unmanageable risk, adding that in the long term, resource nationalism would rise as countries progressed through the stages of resource development and gained technological expertise.
In addition, NOCs were evolving their global expansion by competing for “complex barrels”. Deloitte said that, while this global expansion was not a new story, the fact that expansion strategies differed between oil and gas, was a recent and important development.
NOCs have evolved from being players focused on production in domestic oil resources to becoming interested in unconventional oil and gas, as well as previously stranded reserves that were now commercially attractive through advancements in technology.
Further, the report found that the direction in which US medium-sized integrated companies, supermajors and NOCs had evolved showed that vertical integration, as the winning business model in the oil sector, was far from becoming a market certainty.
“Uncertainty is the order of the day and, how companies react to and deal with this uncertainty, is changing the notion of a singular business model and giving rise to different models,” the report indicated.