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Market Update: Oil & Gas - February 2019

Market Update: Oil & Gas - February 2019

A closer look at meeting challenges of climate change.

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Oil and Gas looks beyond renewables in meeting challenges of climate change

Sustainable investing incorporating Environmental, Social & Governance (ESG) considerations is a growing trend among institutional investors, a trend which is gaining momentum from technological advances, governmental support and pressure from society for a cleaner environment. The Oil and Gas industry is responding to improve the resilience of its business model by incorporating renewable sources of energy as part of their overall production mix. Several major European Oil and Gas companies have invested in solar PV, battery storage and offshore wind, sectors which have seen falling prices and year-on-year growth.

However, the challenge of meeting the ambitious Paris Agreement targets will not be addressed by investing in renewables alone. A reduction in the cumulative amount of carbon dioxide in the atmosphere is necessary in order to limit the impact of climate change on the environment. This will require the implementation of carbon capture, utilization and storage (CCUS), a concept which uses a range of technologies to extract and recycle CO2 from the atmosphere. While CCUS has proven to be technically viable, deployment on a large scale is hindered by the complexity and cost of implementing CCUS projects, with existing CCUS plants representing just four percent of what is needed by 2030 to be consistent with the Paris Agreement according to the IEA1.

To this end, it is encouraging to see two major US Oil companies announce steps last month in this direction by investing in a company which specializes in capturing carbon dioxide directly from the air and converting it into use for enhanced oil recovery and low carbon fuels for transport, a technique it has trialed at a pilot plant since 2015. In a similar vein, `C-capture', a UK based CCUS company has this month secured investment into its proprietary technology to absorb and compress carbon dioxide from power stations and industrial facilities. Developed at a leading university in the UK, this results in a carbon-capture methodology that is potentially more economical than existing processes. Further investment and evaluation in negative emission technologies is a critical if climate concerns are to be effectively addressed.

Under pressure from governments, investors and wider society, Oil and Gas companies are actively evaluating all available avenues to demonstrate their commitment to energy transition, including incorporating energy efficiency and social responsibility within current areas of operation as well as investment in low carbon technologies to diversify their energy mix. While Oil and Gas companies on either side of the Atlantic are broadly adopting divergent approaches to climate concerns, ultimately investment in low carbon as well as negative emission technologies will be required in order to successfully meet the challenges posed to the industry by climate change.
- Mohammed Chunara, Associate Director, Energy & Natural Resources, KPMG in the UK.

Oil and Gas looks beyond renewables in meeting challenges of climate change

The January - February 2019 oil price seems to indicate market rebalancing at comfortable levels of USD $60 per barrel. OPEC seems to be disciplined in enforcing production cuts, as well as geopolitical factors affecting a number of oil producing countries namely Venezuela, Libya and Iran which contribute to perceived reduction in oil supply. The additional sentiment is echoed by some experts who express doubts about American shale production growth sustainability from a medium to long term perspective. In addition, with around 33 percent of the global reserves being attributed to the sanctioned countries or projects (Russia, Iran and Venezuela), the non-market factor influence on the global oil price remains significant.

- Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia

Analyst estimates: oil

$/bbl
2018 2019 2020 2021
Min 57.7 60.0 62.0 69.6
Average 64.9 65.8 69.3 73.2
Median 63.6 65.0 68.6 70.0
Max 71.7 76.0 80.0 80.0

 

$/bbl
2018 2019 2020 2021
December Avg 71.4 69.1 69.8 n/a
January Avg. 64.9 65.8 69.3 73.2
December Median 72.3 67.0 70.0 n/a
January Median 63.6 65.0 68.6 70.0

Analysts estimate: gas

$/MMBtu
2018 2019 2020 2021
Min 2.8 2.6 2.5 2.7
Average 3.0 2.8 2.8 2.9
Median 3.0 2.7 2.7 2.8
Max 3.2 3.2 3.3 3.2

 

$/MMBtu
2018 2019 2020 2021
December Avg. 2.9 2.7 2.7 n/a
January Avg. 3.0 2.8 2.8 2.9
December Median 2.9 2.7 2.7 n/a
January Median 3.0 2.7 2.7 2.8

Note: The forecasts/analyst estimates above from Brent & Henry Hub are an indication based on third party sources and information. They do not represent the views of KPMG.

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