Plunkett`s Energy Industry Almanac, 2013 edition

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Plunkett`s Energy Industry Almanac, 2013 edition

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There is a broad, global focus today on energy as an economic, geopolitical and strategic resource. Some of the world's leading nations, such as Canada and Brazil, are intent on fully developing their oil and gas production. Others, such as China, are focused on purchasing interests in foreign reserves and expertise. Advanced technologies, including 3D seismic, hydraulic fracturing and directional drilling, have opened up exceptional new levels of oil and gas discovery and production around the world.

In addition, there is a greater focus than ever before on the impact of energy production and consumption on the environment. Certain nations, particularly the UK and those in the EU, have very ambitious goals to reduce consumption of fossil fuels. Worldwide, investment in the development and implementation of clean or renewable energy technologies, as well as energy conservation, will be a major priority of many governments and industries. However, this level of interest may be subject to fluctuations in the economy and the price of crude oil and natural gas. The emphasis will vary widely from nation to nation, ranging from cleaner ways to burn the world's immense stores of coal; to the construction of advanced-technology nuclear generating plants that are exponentially safer than older models; to the use of advanced, more cost-effective renewable technologies based on solar, wind and wave power.

Nonetheless, with the exception of hydroelectric power, renewable energy sources remain vastly more costly to implement than fossil fuel-based generators (primarily coal and natural gas). This means that they require significant government subsidies, loan guarantees or incentives in order to cover the costs. As governments in developed economies in Europe, along with the United States, continue to struggle with large deficits and debts, their willingness to back costly renewable energy projects may be dampened significantly. Japan, on the other hand, while facing economic challenges, will maintain a keen interest in alternative energy sources, since it has essentially no fossil fuel supplies of its own and it has changed strategies due to its nuclear disaster of March 2011.

The most important emerging nations are investing heavily in alternative energy sources, while continuing to use growing quantities of fossil fuels. China leads the world in investment in new nuclear plants, and it is installing vast numbers of wind turbines and solar facilities. India is likewise planning multiple new nuclear plants. Brazil continues to be a leader in the low cost production and use of ethanol as a transportation fuel, while developing some of the world's most important new offshore oil and gas fields.

Despite immense demand for energy, supply will remain abundant for the foreseeable future. Better science, technology and engineering are being applied to exploration, production, conservation and distribution alike, with great success. Mature economies such as the United States and leading nations in Europe are benefitting greatly from the world's rapidly growing supplies of natural gas (with the growth in supply coming largely from shale formations) as well as a steady supply of crude oil (with steady growth in shale oil fields, deep offshore wells and Canada's tar sands). Conversely, total energy usage in these mature economies is on a path of decline or slow growth. For example, analysts at BP estimate that American consumption of primary energy sources (such as coal, natural gas and crude oil) declined by a bit more than 1% from 2000 to 2010.

In China, however, the same measure increased by 134%, while the increase was 77% in India. Emerging economies will burn vast amounts of coal and other fossil fuels while their total energy usage continues to soar. This is where the growth in consumption, and related emissions and pollution, is essentially unavoidable for the near future in rapidly rising economies that are adopting modern industrialization, transportation (including millions of new automobiles yearly), business services and housing, with all of the energy consumption that such development demands.

Dramatic shifts in the global energy supply are occurring. Iraq, home to some of the world's largest oil reserves, is expected to begin significant increases in production thanks to increased foreign investment. The International Energy Agency (IEA) forecasts that Iraq's output will grow from 3 million barrels per day in 2012 to 6 million by 2020, and 8 million by 2035.

The IEA forecast in late 2012 that the United States will become almost self-sufficient in energy by 2035, on a net basis accounting for imports and exports. This is due largely to growing oil and gas output, but also to increasing efficiency and conservation as well as renewables. The IEA further forecast that the U.S. would be the world's leading oil producer by 2017, overtaking Saudi Arabia and Russia. This trend is accelerated by the boom in oil shale fields such as the Eagle Ford in Texas and the Baaken in the North Dakota/Montana area.

Meanwhile, very exciting technologies continue to bolster nearly all facets of the energy sector, from green technologies applied to electricity conservation, to tremendous advances in oil and gas exploration technologies, to highly evolved safer nuclear technologies. At the same time, many renewable energy technologies, such as thin-film solar, concentrated solar and wave power to name but a few, are also making significant advances thanks to substantial improvements in engineering and design. Nanotechnology, an exciting materials science, is about to find broad applications in energy production and consumption with tremendous results.

As of October 2012, 3,458 drilling rigs were active worldwide, down significantly from the previous year's total of 3,722. Of that count, 1,834 were in the U.S., down from 2,017 a year earlier. These numbers are from oil field services giant Baker Hughes.

Global Energy Numbers:

Oil consumption in 2011 averaged 88.0 million barrels per day, up 0.7% from 2010. In the U.S., consumption of oil fell by 1.9% to 18.3 million barrels daily, accounting for 20.5% of global consumption, down from 23.9% in the peak year of 2007. China accounted for 11.4% of global consumption, while India accounted for 4.0%. Proven reserves worldwide totaled 1.652 trillion barrels at the end of 2011, up from 1.622 trillion the previous year.

Natural Gas: According to BP, global production of natural gas was 3,276 billion cubic meters in 2011, up 3.1% from 3,178 billion cubic meters the previous year. This increase in production is due largely to shale gas.

Global natural gas consumption was 3,222.9 billion cubic meters in 2011, up 2.2% over the previous year. (The U.S. consumed 21.5% of that total. Europe and Eurasia consumed 34.1%.)

Proven reserves totaled 208.4 trillion cubic meters, enough to last several decades at today's consumption rates. Massive discoveries of natural gas in shale formations in the U.S. and elsewhere are rapidly altering the gas industry. Likewise, vast investments in LNG infrastructure are enabling international shipment of gas from production areas such as Qatar and offshore Australia to major markets in China, Europe and elsewhere. Contracts for delivery of LNG from U.S. gas fields to be shipped to Europe have recently been signed.

Coal: Analysts at BP estimate that global production of coal was 3,955 million tons of oil equivalents in 2011, up 6.1% over the previous year. Consumption was 3,724 million tons of oil equivalent, up 5.4% over 2010.

The largest emerging nations are hooked on coal. China accounted for 49.4% of the world's consumption in 2011, up from 42.6% in 2008. India accounted for only 7.9% of global consumption, but its usage was up 9.2% over the previous year. The U.S., where much of electric generation is fired by coal, used only 13.5% of world consumption, down from 14.8% the previous year. Europe and Eurasia used 13.4% of total world consumption.

Global coal reserves are massive at 860,938 million tons, or enough to last about 250 years at today's consumption rates. The U.S. holds 27.6% of those reserves; Europe and Eurasia 35.4%; China 13.3%; and Australia 8.9%.

America's Energy Numbers:

Natural gas production in the U.S. increased by 7.7%, to 651.3 billion cubic meters, a 20% share of the world's total. (U.S. proven reserves of natural gas soared by 80.8% from 1991 to 2011, as both shale gas and deepwater offshore discoveries have been very significant.)

The Department of Energy estimates oil production was 5,662 thousand barrels per day, from 536,000 wells, during 2011. (Production was up significantly from 5,476 thousand barrels per day in 2010, and 4,950 thousand barrels per day at the recent low in 2008.)

While production in many of America's largest fields, such as the North Slope in Alaska, is in decline, investments in offshore production, enhanced recovery in older fields and newly drilled shale oil wells have paid off handsomely. Nonetheless, total production is down dramatically from the 1970 peak of 9,630 million barrels of oil. (Part of the problem is that Alaskan production peaked in 1988.) However, as the nation's natural gas industry has been growing very quickly, and new production has ensued thanks largely to wells in shale, the total production picture of both oil and gas has improved dramatically, especially when natural gas liquids, or oil that is stripped from natural gas during processing, are included. (These gas liquids amounted to 2,183 thousand barrels per day of oil equivalent during 2011, and have been rising very rapidly.)

Historically, America's use of petroleum led to an increase in annual net (after deducting exports) petroleum imports from 3,161 thousand barrels per day in 1970 to a peak of 12,549 thousand barrels daily in 2005. Since then, however, the number has been dropping steadily. In fact, the drop was 1,005 thousand barrels daily from 2010 (9,441) to 2011 (8,436). New American oil production, both onshore and offshore, has been a driver of this dramatic decline in imports. Meanwhile, the source of those imports has changed as well. Thanks to booming output in areas outside of the Persian Gulf, including such areas as Canada, Brazil and the West Coast of Africa, America's reliance on OPEC and Middle Eastern nations for oil has plummeted. By 2011, America received only 49.2% of its oil imports from OPEC members (when measured in dollars), down from 73.1% in 1980. America's imports from Persian Gulf nations such as Saudi Arabia are now significantly less important than they were 30 years ago.

Only 148 refineries operated in America as of 2011, down by about 50% from 1980. However, these remaining refineries have invested heavily in additional capacity to the extent that their total refining output has grown, despite the fall in the total number of refineries. America's substantial new oil and gas production combined with the expansion of existing refiners made the U.S. a net exporter of refined petroleum products in 2011, for the first time since 1949.

Total American consumption of energy of all types was 97,301,269 billion BTUs in 2011, having grown about 50% since 1970. Consumption in 2011 was down slightly from the previous year. More importantly: in terms of BTUs consumed per year per capita, American energy use is in a steady long-term decline. That is, while the number of automobiles and aircraft per capita has grown dramatically; along with vast growth in the percentage of homes and buildings that are air conditioned; combined with tremendous increases in the number of appliances, computers and entertainment devices per person; efficiency has grown to the extent that the energy consumption of an average American declined from a peak in 2000 of 351 million BTUs yearly, to only 312 million in 2011.

By another measure, energy use per unit of economic output has fallen dramatically. On an inflation-adjusted basis, energy consumption per dollar of GDP (gross domestic product) dropped from 17.99 thousand BTUs in 1970 to only 7.28 thousand BTUs in 2009.

According to the U.S. Department of Energy, electric generation in America as of 2011 used the following ratio of fuels: coal 42.2%; nuclear 19.5%; natural gas 25.0%; hydroelectric 7.92%; and non-hydro renewables such wind and solar, at 4.75%.

U.S. consumers have shown a true sea change in their preferences and priorities as a result of higher energy prices, and the era of the gas-guzzling, giant family trucks or SUVs as a standard is over. Meanwhile, consumers and businesses alike are increasingly willing to invest more in the initial cost of green buildings, high-efficiency appliances and equipment and energy-saving transportation equipment, with the promise of lower energy costs for daily operation.

Thanks to the development of advanced technologies for producing gas from America's immense shale formations, available gas reserves are growing at a rapid rate with no end in sight. This trend is revolutionizing the gas and petrochemicals industry, while keeping natural gas prices at very modest levels. Technologies used in shale gas fields, including horizontal drilling and hydraulic fracturing, are now being used in large measure in shale oil fields.

Oil Prices and Total Reserves:

An estimate of crude oil resources on a global basis, published by Cambridge Energy Research Associates in 2006, was 4.82 trillion barrels—enough to take care of the world's needs for more than 100 years. This number included oil shale and other sources that are relatively difficult to tap. Technologies will continue to be enhanced, enabling the recovery of significant portions of these resources, as long as the market price of energy is high enough to justify necessary investments in technology, exploration, development, production and distribution.

There have long been periods of major fluctuations in price for oil, coal and natural gas. Energy consumers of all types, from residential consumers to transportation firms to industrial plants, have seen oil and gas prices swing wildly, and they have often suffered the economic effects of greatly increased energy costs. Strong global demand for energy combined with political strife in many oil exporting nations could easily lead to a long-term period of relatively high market prices for crude oil. The price of Arabian light crude oil rose from about $1.85 per barrel in 1972 to about $40 in 1981 during an "energy crisis," the peak price for many years to come. Adjusted for inflation, that $40 barrel of oil would have been $100 or so in 2012 dollars.

More recently, during 1986 and again in 1998, the price of a barrel of oil plummeted to about $10 in a short period of time. However, prices generally rose from 2003 through early 2008. In the fall of 2005, the post-Hurricane Katrina price of a barrel of light U.S. crude oil peaked just shy of $70 as the extent of the damage to Gulf Coast production became apparent. The price of natural gas more than doubled from June through October 2005, rising from about $6 to nearly $16 per million BTUs for spot market prices, compared to only about $3.50 during November 2012.

In mid-2006, the price of light U.S. crude peaked at about $80. By late 2007, it had neared $100. By mid-2008 it was over $145, but plummeted quickly into the $60s when the global financial crisis of 2008-09 slowed economies worldwide. Another significant factor in the price of a barrel of oil is the value of the U.S. dollar relative to other currencies. During recent years, the dollar has been in a lengthy slide in value, causing the price of oil (which is priced in U.S. dollars on world markets) to rise when reported in dollar terms. Of course, the value of the dollar is not the sole factor regulating the price of a barrel of oil, but it is a very important contributing factor.

Recent higher prices for oil and gas put a new emphasis on production from alternative (or "unconventional") sources such as tar sands in Canada. These fields are significantly more expensive to produce than conventional fields. Meanwhile, offshore exploration and production will continue to be emphasized in many parts of the world, with sophisticated rigs drilling ever deeper to tap massive reservoirs, using technologies that enable the rigs to go to depths undreamed of 20 years ago. Vast new investments in very deep offshore wells in the Gulf of Mexico brought significant new production to the American market. Outside the U.S., the industry is investing quickly and heavily in deep wells offshore of Africa, Brazil and elsewhere.

Consumers and business organizations alike are attempting to insulate themselves from high energy costs. Many are reacting with new conservation efforts. For example, Toyota's hybrid-powered automobiles have been a huge success. Greatly enhanced building materials and appliances that provide much greater energy efficiency are becoming standard in developed nations. Meanwhile, the growing industrial base and middle class in many parts of the globe, particularly India and China, are putting new strains on energy supplies while energy emissions are creating new environmental concerns.

A significant portion of oil consumption is used as fuel for transportation, including cars, aircraft and trucks. There is no end in sight to the need for power and fuel in developed and emerging economies such as the U.S., the European Union, Japan, India and China. Although the world has made an immense investment in electric supply infrastructure, as much as one-third of the world's population either has no access to, or cannot afford, a steady supply of electricity.

In 1892, Thomas Alva Edison established the Pearl Street Station in New York City—the world's first central electric power station. By the 1920s, electricity was in common use in American buildings and homes. Fuels for electric generation vary widely around the globe, but coal and natural gas are common sources. In Europe, a large portion of electricity is generated by nuclear plants, especially in France, and massive investments are being made in European solar and wind generation. A looming question is whether America and major nations in Europe will resume significant construction of nuclear generation plants. The fact that several nuclear plants were destroyed by a tsunami at Fukushima, Japan in early 2011 makes significant new development of nuclear sites even more controversial. Meanwhile, advanced generation nuclear technologies have the potential to provide much greater operating efficiencies with vastly increased safety over the plants constructed in earlier years, and the nations of China, India, Saudi Arabia and the UAE are likely to move ahead with massive nuclear plant construction plans that are already in place. China may construct as many as 90 new nuclear plants over the long term.

Key Questions Answered:

How is the industry being shaped by new technologies?

How is demand growing in emerging markets and mature economies?

What is the size of the market now and in the future?

What are the financial results of the leading companies?

What are the names and titles of top executives?

What are the top companies and what are their revenues?

This information-packed book covers competitive intelligence, market research and business analysis—everything you need to know about the energy, utilities, petroleum and natural gas industry, including:

Profiles of leading independent oil companies

Profiles of leading firms in the oil field services business and energy technology and services providers

Market trends analysis including oil, gas and coal imports, exports, production, methane, tar sands, shale and LNG

Analysis of trends in energy conservation, renewables and alternative energy

To order this report:: Plunkett`s Energy Industry Almanac, 2013 edition

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