10/12/2015

Eventsof2011shapetheOilandGasindustryin2012EYUnitedStates

Eventsof2011shapetheO&Gindustryin2012
Houston,2February2012Keyeventsandtrendsin2011frameEYsOil&Gas
Centerleadersexpectationsfor2012.Globalpolitics,midstreamcapacity,new
domesticsourcesofcrude,environmentalconcerns,theshalegasboomandnatural
gaspricingmarketarereshapingtheoilandgasindustrymovingforward.
Asoilandgasactivitieshavebecomemoreglobalinnature,macroeconomicfactorsworldwidewill
continuetoimpacttheUSenergyindustry,saidMarcelaDonadio,AmericasOil&GasLeaderforErnst&
YoungLLP.Atthesametime,changesindomesticenergysupplyanddemandrequirecarefulmonitoring
andresponseinordertoseizeopportunitiesandmanageriskathome.Thisistheyeartoexpectthe
unexpected.
Geopoliticalupheavalimpactsoilprices
Oilpricescouldincreasefromrisingglobalgeopoliticalconcerns.Whilethedynamicsoflastyears
ArabSpringcontinue,anevenlargerriskisthecurrentsituationintheStraitofHormuz,throughwhich
approximately17millionbarrelsofoiltraveldaily.Politicalinstabilityalsocontinuesinotherkeyoil
exportingcountrieslikeVenezuelaandNigeria.Additionalimpactsmaycomefromupcomingelections
inoilproducingcountriesintheCIS,theMiddleEastandSouthAmerica.

Strandedcrudedampensdownstreammargins
Largelyasaresultofbottleneckscausedbylimitedcapacitytotransportincreasedsupplyinthemid
continentandCanadatorefinersalongtheGulfCoast,WestTexasIntermediate(WTI)crudeoilprices
becamedisconnectedfromglobalbenchmarksin2011.Atonepointinthemiddleoftheyear,the
quotedWTIpricewasalmost$30abarrelbelowcomparablecrudebenchmarks.Thebottleneckswill
persistin2012.
WTIsdisconnectwillcontinuetoprovidesomepricingadvantagesformidcontinentrefiners.However,
thosewhowereexposedtothehigherpricesofthegloballytradedcrudeswerechallengedin2011.
ThesepressurescontributedtodecisionsbyseveralEastCoastrefinerstoclosedownorsell
underperformingrefiningcapacity.ClosurescouldcreatehigherproductpricesontheEastCoastand
overallgasolinetightness.Potentialnewbuyersoftherefineriescouldpreventtheclosuresorreopen
thecapacity.CompaniesfromChinaandIndiawerehighlyacquisitiveinEuropeandownstream
businessesin2011.In2012,itispossiblethattheycouldmakeamoveintotheUSgiventherelatively
wideavailabilityofdownstreamassets.

UScruderenaissance
Longthoughtofasanoilproducingregioninterminaldecline,thecombinationofstrongpricesand
improvingtechnologyhasturnedtheUSintoagrowtharea.Theapplicationofshalegastechnologyto
shaleoilresourcesislargelytothankforaturnaroundinUSproduction.
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10/12/2015

Eventsof2011shapetheOilandGasindustryin2012EYUnitedStates

AdramaticriseinoilproductioninNorthDakota,largelyfromtheBakkenshale,hadanotableimpact
onthemarketin2011andwillcontinuetoconstituteasignificantportionofdomesticenergyproduction
growthin2012.Asaresultoftheriseinproduction,weexpectfurthergrowthandtransactionactivityin
theBakkenasmoreundevelopedpropertycomesonlineandbeginstoproduce.

Environmentalandsafetyconcernsintensify
AstheindustrybegantomovepasttheGulfofMexicooilspillandconcernsregardingenvironmental
anddrillingsafetywerebeingaddressed,severalotheroilspillsoccurredin2011.Thisonceagain
heightenedthepublicsandpolicymakersattentionontheindustry.Additionally,concernsaround
hydraulicfracturingcontinue.Theseincludeissuesrelatedtopotentialwatercontamination,aswellas
questionsaroundthepossiblelinkagesofhydraulicfracturingandseismicactivity.

UnconventionalgasboomcreatesLNGexportpotential
Duetorapidlygrowingnaturalgasproduction,theUSistransformingitselffromanexpectednetgas
importertoapotentiallyhugeexporter.Itisanticipatedthatmoreproposalsfornaturalgasliquefaction
facilitieswillcomeforwardin2012.
Ledbyshalegasoutput,USgasproductionissurgingevenasgasdirecteddrillinghasslowed.US
gasproductionisatitshighestlevelinalmost40years,despitesupplyanddemandimbalanceand
continueduncertaintyaroundshaleproductionsimpactsonair,waterandgeologicformations.Witha
recoveringeconomyandcompetitivegasprices,theUSDepartmentofEnergyseesmodestdemand
growthcontinuing.However,manygasproducersareconcernedaboutthecurrentverydepressedprice
environment,andintheneartermarehopingforsomesupportfromacoldwinter.

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firmofErnst&YoungGlobalLimitedlocatedintheUS.
HowEYsGlobalOil&GasCentercanhelpyourbusiness
Theoilandgasindustryisconstantlychanging.Increasinglyuncertainenergypolicies,geopolitical
complexities,costmanagementandclimatechangeallpresentsignificantchallenges.EYsGlobalOil&
GasCentersupportsover9,000oilandgasprofessionalswithtechnicalexperienceinproviding
assurance,tax,transactionandadvisoryservicesacrosstheupstream,midstream,downstreamand
oilfieldservicesubsectors.
TheCenterworkstoanticipatemarkettrends,executethemobilityofourglobalresourcesandarticulate
pointsofviewonrelevantkeyindustryissues.Withourdeepindustryfocus,wecanhelpyour
organizationdrivedowncostsandcompetemoreeffectivelytoachieveitspotential.Formoreinformation,
pleasevisitwww.ey.com/oilandgas(http://www.ey.com/oilandgas).
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