The ripple effects of the North American energy boom from major importer to soon-to-be exporter are being felt across the Middle East, Russia, and China. This trend will result in new sources of supply, and it will also increase competition, reshape the global geopolitical landscape, and create greater interdependencies among nations, according to Deloitte Touche Tohmatsu Ltd.'s (DTTL's) 2014 Oil and Gas Reality Check report.
The report focuses on expansion and contraction on a number of fronts: the waxing and waning of dominance among suppliers; the progression into globalization from regionalization in energy markets; the growing shares of some fuels, and the declining roles of others in the global energy mix; and the opening and closing of borders in response to geopolitical concerns.
Adi Karev, DTTL’s global head of oil and gas, commented, “This year, energy markets have been marked by geopolitical motivations and pragmatism to an extent never seen before. The effect of the North American energy revolution will be felt in fewer energy-related tensions across Eurasia, as well as in the continuation of efforts by the US to maintain its role as keeper of the global balance of power in the face of rising Chinese and reviving Russian influence in world affairs.”
The report outlines five key areas:
Global energy – North American revolution
The US is positioned to be a net exporter of natural gas by the end of this decade, according to projections from the US Energy Information Administration (EIA). “Some fear that this growing feeling of self-sufficiency will translate into greater isolationism and a reluctance to remain engaged in international affairs,” Karev said. “However, I believe that this scenario is unlikely as we begin to see new sources of supply and greater competition for demand, particularly in Asia Pacific. A simultaneous shift toward cleaner fuels in the global energy mix bodes well for natural gas, and consequently for LNG as natural gas globalizes.”
Energy supplies – New sources, new geopolitics
OPEC and Russia have dominated the oil and gas export environment for over half a century. Today, new suppliers are challenging their dominance, and, in the process, altering the geopolitical landscape. Karev noted that new sources of supply will shake up the global hydrocarbon markets in the next decade. “Increased US domestic output, as well as production growth in Canada, Mexico, Brazil, and Kazakhstan, will reshape global oil and gas markets and the geopolitical landscape,” he said. “We are likely to see decreased dominance of traditional producers, mainly OPEC countries and Russia, that will be challenged, and they will be forced to compete more aggressively to maintain their market share and influence.”
Energy mix – A change in the global order
The global energy mix is shifting toward cleaner fuels such as natural gas. In North America, natural gas is increasingly being used in power generation, manufacturing, and transportation. Japan also plans to increase the share of natural gas in its power mix, continuing a course that was set after the Fukushima Daiichi accident forced a pause in its use of nuclear power. In Europe, the desire to adopt cleaner fuels will continue despite some recent backtracking on more costly renewable sources, which has temporarily driven the region toward greater consumption of coal.
Energy production – Oil and gas megaprojects call for new project management strategies
Oil and gas megaproject reserves, those holding more than 1 billion barrels of oil equivalent, can be broadly grouped into three categories: traditional, new age, and unconventionals. Traditional projects comprise onshore, shallow water, heavy oil; new-age projects encompass LNG, gas-to-liquids (GTL), deepwater, and Arctic; and unconventional projects refer to shale, tight oil, and the oil sands in Canada.
Energy nationalism – Driven by greed, fear, and pride
Resource nationalism results from a tug of war among three basic human drives: the desire for wealth as resources are monetized (greed); the desire for energy security, since modern societies are very dependent on energy (fear); and the desire to maintain national sovereignty over one’s resources for purposes of national development (pride). Every country wrestles with these opposing and conflicting agendas at some point, reflecting changing national endowments, local development objectives, and national priorities.