The Global Oil and Gas Business is going through a period of significant change. The outlook for prices is uncertain, problematic, and subject to pressures from alternative energy sources. In addition the growth in global demand is coming from newly industrializing markets rather than the more mature economic zones. This has major implications for upstream and downstream operations, especially for the type and level of investment that will be required over the medium term. These developments also have a direct impact on the closely linked petrochemical business.
In summary, the oil and gas business will require a very different strategic approach in the future within a fundamentally changed economic, market and business environment. Our new course aims to enable you to design and manage the new approach.
Looking into the future we foresee major management challenges at the strategic and operational levels of activity. This starts with understanding the main forces for change and the direction that the process of change will take. In particular all managers need to take into account the new emerging structure and dynamics of the global oil and gas business, with particularly detailed reference to the geographical shift in demand; the changing influence of OPEC and non-OPEC producers; the development of alternative sources of energy such as shale derivatives; and the emergence of renewables in the total energy mix.
The following are some of the key issues that our new course will address.
The Current Position
(a) Global Energy Demand
Word total primary energy consumption increased by just 1% in 2016, following growth of 0.9% in 2015 and 1% in 2014. This compares with the 10-year average of 1.8% a year. Improvements in conversion technology and a growing role for renewables accounted for the major part of this trend.
As was the case in 2015, overall growth in demand was below average in all regions except Europe & Asia. All fuels except oil and nuclear power grew at below-average rates and coal usage faced considerable drop in its share of total energy balance.
Energy consumption in China grew by just 1.3% in 2016, reflecting general economic slowdown and a much sharper focus on conversion efficiency. Growth during 2015 and 2016 was the lowest over a two-year period since 1997-98. Despite this, China remained the world’s largest overall growth market for energy for a 16th consecutive year.
The Brent (reference) oil price averaged $43.73 per barrel in 2016, down from $52.39 per barrel in 2015. The 2016 price constituted its lowest (nominal) annual level for over 20 years.
Oil is still important in the primary energy balance, accounting for approximately one third of global energy consumption. Oil gained global market share for the second year in a row, following 15 years of decline from 1999 to 2014.
Global oil consumption growth averaged 1.6 million barrels per day (Mb/d), or 1.6%, above its 10-year average (1.2%) for the second successive year. China (400,000 b/d) and India (330,000 b/d) provided the largest increments.
However, global oil production rose by only 0.4 Mb/d, the slowest growth since 2013, reflecting stagnation in demand and excessive inventories of crude oil and refined products. Production in the Middle East rose by 1.7 Mb/d, driven by growth in Iran, Iraq and Saudi Arabia.
Production outside the Middle East fell by 1.3 Mb/d, with the largest declines in the US, China and Nigeria (-280,000 b/d).
Growth in refinery throughput slowed from 1.8 Mb/d in 2015 to 0.6 Mb/d last year. Refining capacity grew by only 440,000 b/d, versus 10-year average growth of 1 Mb/d. This was counterbalanced by a rise in refinery utilization and changes in the mix of product demand, including petrochemical feedstocks.
Oil inventories are very high and it will take a long time to bring these down to a level at which prices can possibly begin to recover.
(c) Natural Gas
World natural gas consumption grew by 63 billion cubic metres (bcm) or 1.5%, slower
than the average of 2.3% per year over the period to 2016.
Global natural gas production increased by only 21 bcm (0.3%). Declining production in North America has been partially offset strong growth from Australia and Iran. The future of LNG development will have a critical influence on natural gas prices and available volumes.
European gas consumption rose sharply by 30 bcm (7.1%). This was the fastest growth since 2010. Russia recorded the largest drop in consumption of any country, though its output and export trade remained strong. Gas trade grew by 4.8%, supported by 6.2% growth in LNG imports/exports. Europe is attempting to control its dependency on Russian gas.
Most of the net growth in LNG exports came from Australia. In addition LNG exports from the United States of America rose from 0.7 bcm in 2015 to 4.4 bcm in 2016.
The Major Challenges in Oil and Gas Business
It will be seen from the above data that the oil and gas business is undergoing significant change. The following are the major challenges faced by managers in these sectors as we go forward into a different future. We need to concentrate on the following priorities.
- Analyse where the best opportunities will be found in the future
- Develop a highly focused strategy to take the best opportunities
- Concentrate resources and actions to sustain competitiveness
- Manage the key processes of strategic change
- Create and manage high performing teams to take a new strategy forward
This course will be offered in several global centres of the oil and gas industry. If you are involved in oil and gas business or are affected by developments in this business, join us to take advantage of an up-to-date perspective on one of the world’s most significant industries.