Skip to main content

Editorial comment

As the New Year gets going, we tend to predict what the next twelve months are likely to hold. A December report from the Deloitte Center for Energy Solutions presents predictions for the US oil and gas industry, gathered from its survey of oil and gas professionals. Almost one in two professionals surveyed expect that layoffs in the industry will increase in the next year, while most said their companies are reducing operating expenses (75%) and over half said their companies are reducing overall capital expenditure (56%) in response to the recession. However, when asked if they expected revenues to shrink throughout the industry in the coming year, most participants disagreed, seeing growth ahead (with one exception: only 35% expected revenues to grow at refining companies). But this means that a majority expected growth for NOCs, IOCs, independent exploration and production companies, supply and service companies, and energy consultancies.


Register for a free trial »
Get started absolutely FREE in 2 minutes, no credit card required.


Gary Adams, Vice Chairman of Deloitte’s oil and gas practice, comments:  “What we are seeing here is an underlying confidence in the sustainability of the oil and gas industry...Companies have survived severe volatility over the past decades, and despite the current recession, these companies have sophisticated, adaptable business models”.

This optimism is reflected elsewhere in the survey, as Deloitte reports a favourable view of the future of natural gas in the US. The majority of respondents (84%) believe that the best days for the natural gas industry are ahead. While participants recognised the continued contribution of oil to the energy mix, a quarter of all asked believe that natural gas will dominate as a fuel source in 2015. Unconventional gas is also believed to be of future importance: almost one in ten expects it to be a main source of energy for the US in five years. These high hopes for natural gas are probably bolstered by recent unconventional gas advancements in the US, including the production and transportation of shale gas and coal bed methane, and also by the expectation that climate change legislation will increase demand for gas-powered electricity generation in the US.

In the UK, where a higher percentage of its electricity is generated by gas (the US market is dominated by coal-powered plants), gas was once plentiful, flowing from pipelines in the North Sea. However, these fields are on the decline and total UK production in Q2 2009 was 10% lower than a year earlier. Thus the UK imports approximately 50% of its annual requirement and estimates of import dependence by 2010 range from 45% to a massive 70%.

As I write, following recent heavy snowfall and freezing temperatures, it has been announced that UK stored gas reserves are down to six hours, as Norwegian imports failed to arrive in the bad weather. The Ormen Lange processing centre has been shut for three days and the interrupted gas flow prompted National Grid to announce a gas balancing alert (warning notice). Although gas is supplied from other sources (the North Sea, LNG imports and other pipelines from continental Europe), this does demonstrate how vulnerable a country can become to interruptions in gas imports.

Those readers in Belarus will understand the situation: Russia cut off gas supplies through the Druzhba pipeline to its neighbour from 1st January 2010 (for four days), after talks over tariffs ended without resolution. Though transport volumes to Europe were not reduced during the cut off, there remained the possibility that Belarus could retaliate by drawing off exports bound for Europe. Ukraine was accused of doing exactly this one year ago, when it too suffered a gas cut off at the hands of Russia, which left several eastern European countries without gas for days. An early-warning mechanism was instated as a result of last year’s dispute, although Russia failed to use it to give an early warning this time around.

And so the annual Russian winter cut off happened again, a timely reminder to all gas importers of how important dependable gas flow through pipelines really is. Few things will be exactly as we predict them in 2010. But for Belarus and a few of its neighbours, some things, it seems, are predictable when it comes to natural gas.


View profile