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Market Update: Oil & Gas - April 2018

Market Update: Oil & Gas - April 2018

A closer look at US-China trade tensions, the UK Continental Shelf and the short-term future oil price.

Mark Andrews

Partner and UK Head of Oil & Gas

KPMG in the UK


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Resilience & innovation of the UK Continental Shelf

Whilst considered to be a mature petroleum province, the UK offshore oil & gas industry has proved its resilience in the face of the one of the most severe oil price downturns in recent memory. Regional exploration and production players have worked tirelessly to increase operational efficiency; since 2014 companies have delivered unit operating cost improvements greater than any other basin in the world.1 Strategic investors, particularly Private Equity, are taking notice, with recent M&A activity in the North Sea even surpassing that of the Permian in the second half of 2017.2

Not resting on their laurels, given the late life nature of many upstream assets in the basin, North Sea operators continue to innovate and lead in enhanced recovery, decommissioning and now robotics. In a first for the industry anywhere world-wide, Total S.A have announced, in collaboration with the Oil & Gas Technology Centre, that they will conduct an 18-month trial utilizing a fully autonomous robot for inspection on the onshore Shetland Gas Plant as well as on its 100% owned offshore Alwyn platform.3 If successful, the technology could be used to improve safety, reduce cost and ultimately extend the economic life of North Sea assets.

Whilst undoubtedly mature, the UK Continental Shelf continues to prove its attractiveness as it competes for global capital, ensuring its viability long past the prediction of many of its doubters.

- Mohammed Chunara, Associate Director, Energy & Natural Resources, KPMG in the UK

Short-term future oil price

In April 2018 the oil price broke a resistance level of $70 per barrel. This move is supported by three factors - the rebalancing of supply and demand, the geopolitical tensions over Syria and the OPEC-Russian production cut deal. Should most of these factors hold for the short-term future oil price may be expected to remain within the USD 70-80 dollars per barrel. The long-term electrification threat and the increasing US production limits the long-term opportunity for oil price increase. However, the OPEC -Russia long-term supply agreement may serve as a welcome support factor for the stability of the oil price at these levels for the foreseeable future.

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

US-China trade tensions will ratchet up

Oil markets reacted negatively to escalating trade tensions between the US and China recently. President Donald Trump's comments on 5 April reaffirm a very tough, prolonged dialogue over substantive, credible IP and technology transfer disputes. Threatening additional tariffs on $100 billion of China goods exports makes managing away from worst case outcomes increasingly difficult, but still possible. For its part, Beijing's quick reaction to the US's 301 tariff regime is a strong indication that Beijing does not fear a rapid action-reaction cycle, believes it can withstand more pain than the US, and wants US stakeholders to pressure President Trump into a deal. Ultimately, we think that a round of tariffs is likely to take effect, but eventually a negotiated solution between the two countries will avoid worst-case outcomes of a full-scale trade war that would chill economic activity. A modest bearish impact should be factored in, however. The energy trade between the two countries itself will likely be mostly immune to direct action. Though Beijing included petrochemicals and liquefied propane on its list for tariffs, the impact will be fairly muted. While China may still keep the threat against crude and LNG tariffs alive for negotiating leverage, ultimately such a move is unlikely.

- Divya Reddy, Practice Head, Global Energy & Natural Resources, Eurasia Group*

                                                                  *Guest contributor for April edition

Analyst estimates: oil

  2018 2019 2020 2021
Min 58.0 53.0 58.0 63.5
Average 62.6 61.8 62.9 65.7
Median 62.8 61.9 62.0 65.0
Max 70.2 70.0 70.0 70.0


  2018 2019 2020 2021
February Avg
61.6 62.6 65.3
March Avg
61.8 62.9 65.7
February Median
62.0 61.0 62.0 65.0
March Median
62.8 61.9 62.0 65.0





2019 2020 2021
Min 55.7 54.0 59.0 63.0
Average 61.2
61.6 62.6 65.3
Median 62.0 61.0 62.0 65.0
Max 65.0 70.0 70.0 70.0


  2018 2019 2020 2021
January Avg 61.4 60.7 62.0 65.9
February Avg 61.2 61.6 62.6 65.3
January Median 62.0 60.8 62.0 65.0
February Median 62.0 61.0 62.0 65.0

Analyst estimates: gas

  2018 2019 2020 2021
Min 2.8 2.7 2.7 2.7
Average 2.9 3.0 2.9 2.9
Median 3.0 2.9 2.9 2.9
Max 3.1 3.3 3.2 3.2


  2018 2019 2020 2021
February Avg
3.0 3.0 2.9 2.9
March Avg 2.9 3.0 2.9 2.9
February Median 3.0 3.0 2.9 2.9
March Median 3.0 2.9 2.9 2.9

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.


1Oil & Gas UK Economic Report 2017 (PDF 34.1 MB)
2 IHS Markit Global Upstream M&A Review and Outlook
3Autonomous offshore robot a world-first

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