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Oil and Gas Industry Prices and Value Chain Analysis
Frost & Sullivan, March 2011, Pages: 61
This Frost & Sullivan research service titled Oil and Gas Industry Prices and Value Chain Analysis provides drivers and restraints, industry challenges, and market trends. In this research, Frost & Sullivan's expert analysts thoroughly examine the following prices by industry segment: upstream (crude oil spot prices and natural gas price) and downstream fuel prices (gasoline, gas oil, and fuel oil) for major markets such as the United States, Gulf, Rotterdam, and Singapore.
Market Overview
Supply-Demand Imbalance Allows Oil and Gas Producers to Raise Prices
While there is sustained demand for oil and gas from developed countries, developing countries such as Brazil, China, India, and Mexico have significantly raised their demand for energy in their bid to become highly industrialized. This enhanced consumption has placed the bargaining power firmly in the hands of the oil producers, enabling them to charge higher prices due to the skewed supply-demand ratio. Another offshoot of this escalating demand is the heated upstream activity as well as intense exploration and production, which makes the oil and gas industry more attractive to investors. However, the biggest influencers of oil and gas prices are political, economic, and regulatory changes. In the upstream segment, crude oil prices are affected by the Organization of Petroleum Exporting Countries’ (OPEC’s) allocations, while natural gas is influenced by climate conditions. In the downstream segment, local market conditions impact fuel prices.
The economic downturn took its toll on the oil and gas industry in 2009, with prices bottoming out at $30 to $40 per barrel. The industry has put that phase behind it and is expected to demonstrate steady growth rates over the next five years. Government involvement will go a long way in deciding the prices of oil and gas, as some regulations may necessitate higher investments, while some others may restrict new areas of exploration and production. The effect of the regulatory framework on the oil and gas prices depends on the country’s level of economic development and its oil dependence. “Countries, including the United States, in order to avoid dependence on foreign oil, maintain strategic oil reserves that help meet the demand in uncertain situations such as hurricanes and war,” says the analyst of this research. “Nevertheless, their inability to use their contingency reserves compels them to import, usually at higher costs.”
New Drilling Technologies Alleviate Price and Attract More Investors
To ensure energy security, countries have passed legislations mandating the use of natural gas and alternate renewable sources of energy due to the declining production from the mature onshore fields. These unconventional supplies, such as natural gas (coal bed methane (CBM), shale gas, tar sands), are expected to plug the gaps in energy demand that oil reserves cannot fill. However, the price of extraction for these novel sources are higher (both financially and environmentally) than the traditional methods, and producers have to charge more than $80 to maintain worthwhile margins. Advances in drilling technologies have alleviated this price concern to a large extent, as they have enhanced operational efficiency and productivity.
Improvements in drilling technologies are also likely to result in more deep water projects. In North America, upstream activity is likely to move toward less conventional drilling, requiring the development of new techniques. “The oil and gas industry is showing a trend toward directional-horizontal drilling,” notes the analyst. “These techniques enable producers to reach reservoirs that are not located directly beneath the drilling rig - a capability that is particularly useful for offshore development.” These new tools improve productivity and reduce costs and labor, allowing producers to obtain better margins. This draws in more investors, which, in turn, hikes prices.
Market Sectors
Expert Frost & Sullivan analysts thoroughly examine the following market sectors in this research:
By Average Prices in the Sectors of:
- Upstream (crude oil spot prices and natural gas price)
- Downstream fuel prices (gasoline, gas oil, and fuel oil) for major markets such as the United States, Gulf, Rotterdam, and Singapore
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