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Oil and gas industry dynamics changing as LNG growth accelerates

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Oil and gas industry dynamics


changing as LNG growth
accelerates

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By: Jean McKenzie


Bright oil and gas prospects for under explored...

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14th March 2012

The global oil and gas industry had undergone a number of major developments in the
recent past, which would affect the industry significantly going forward, Deloitte & Touche
South Africa oil and gas leader Anton Botes said on Wednesday.

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These developments include the growth of the liquefied natural gas (LNG) market, the
global development of unconventional gas, the increase in riskier exploration and
production investments and rising operating costs in the industry.
It used to be sufficient to view global oil and gas trends in the typical cyclical rhythms that
the industry moves in. But in the last five to ten years, significant macro changes caused
spikes in the matrix we usually evaluated of production, consumption and prices, Botes
said.
For example, the rise of China to eclipse Japan as the worlds second-largest economy
had a long-lasting impacting on global energy production, consumption and prices, he
said. These changes are not fleeting but structural and they are shifting the cyclical
rhythm that we are used to in the oil and gas market.
Botes said that the changes were resulting in a new balancing of the geographical flow of
petroleum supply and demand, a balancing of fuel types and a change in the types of
players involved in the industry.
In the early 2000s, about ten countries exported LNG and trade was based on long-term
sales agreements and flowed from the producers in South East Asia and the North East,
to consumers in East Asia and Europe. However, LNG has in the last ten years become a
globally traded commodity with new exporters from Latin America and West Africa
emerging and new importers such as China and India appearing. In the next five years,
there would be additional exporters from North America, the Eastern Mediterranean and
East Africa.
By 2035, LNG could account for 50% of the international gas trade where it is currently
around 26%, predicted Botes.
The emergence of new LNG exporters and importers had resulted in a change in the
dynamics of energy geopolitics. The growth of LNG also signals a shift in fuel mix as
countries such as the US, China, Australia and Japan see a future more reliant on natural
gas than on coal . . . and nuclear.
Botes proceeded to explain that the search for LNG had not meant that producers were
moving away from oil. High crude prices are incentivising producers to invest in
exploration and production projects. The new shift now is that it has become economical
for companies to go deeper and to go riskier. Botes qualified this by saying that there

http://www.engineeringnews.co.za/article/oil-and-gas-industry-dynamics-changing-as-lng-growth-accelerates-2012-03-14[23.11.12 11:32:29]

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Oil and gas industry dynamics changing as LNG growth accelerates

were other factors also pushing the deeper exploration such as new technology available.
However, the rising cost of doing business in the oil and gas industry was also impacting
players globally. Although capital expenditure of petroleum discoverers is on the rise, so
too are operating costs. One of the main drivers of increased [operating costs] is high
wages and this could be a long-term problem for the perceived shortage of skilled labour.
In a recent survey of petroleum executives conducted by the Economist a shortage of
skilled labour was listed as the second major barrier to growth. Unconventional
exploration was also more labour intensive and locations typically more remote, which
resulted in increased costs.
The oil and gas industry in sub-Saharan Africa with its long petroleum history and bright
future in offshore and unconventional resources stands squarely in these balancing
dynamics, he concluded.
Botes was speaking at the Oil & Gas Africa 2012 conference in Cape Town.
Edited by: Creamer Media Reporter
To subscribe to Engineering News's print magazine email
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TOPICS IN THIS ARTICLE


City
Cape Town

Company
Deloitte & Touche
South Africa

Continent

Country

Africa

Australia

Europe

China

Latin America

India

North America

Japan
United States

Industry Term
Energy Production
Consumption

Person
Anton Botes

Region
East Africa
West Africa

Liquefied Natural
Gas
Oil And Gas Industry
Oil And Gas Leader
Oil And Gas Market
Oil And Gas Trends
Unconventional Gas

http://www.engineeringnews.co.za/article/oil-and-gas-industry-dynamics-changing-as-lng-growth-accelerates-2012-03-14[23.11.12 11:32:29]

Oil and gas industry dynamics changing as LNG growth accelerates

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http://www.engineeringnews.co.za/article/oil-and-gas-industry-dynamics-changing-as-lng-growth-accelerates-2012-03-14[23.11.12 11:32:29]