A STUDY ON ECONOMIC FACTORS INFLUENCING RECOVERY OF INVESTMENT ACTIVITY IN OIL AND GAS INDUSTRY: AN ANALYSIS ON MAJOR INTERNATIONAL COMPANIES.

Author:Kondratenko, Nikolay
Position:Report - Statistical data
 
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INTRODUCTION

During the recent years, rapid and hardly-predictable changes are typical characteristics of the world energy market. Decrease of prices for oil which started in the second half of year 2014 and turned out to be a lingering event, became a serious challenge for the whole branch. Oil and gas companies as well as leading oil-producing countries are forced to reformulate their strategies and adapt for new market realities. Under such condition, adopting appropriate and upto-date strategies particularly in income management of any organization is necessary (Khorasani & Almasifard, 2017). Economic factors play crucial role in adopting of such efficient strategies for investment recovery particularly during low prices of the products. Oil and gas industry is one of the main branches influencing several aspects of worldwide industries and even international social and political relations. In this regard, conducting up-to-date and comprehensive studies to assess and determine the main current worldwide trends of development in oil and gas branch including growth factors, regional growth specificity, sources of satisfaction of increasing demand and then to analyse the investment strategies based on the real data of the main worldwide companies are of significant importance (Khorasani & Almasifard, 2017). Therefore, the present study was designed to give a fresh look at these factors. The first part of this article is dedicated to analysis of current trends of international energy market and the second part focuses on the investment strategies of major international oil and gas companies. The study cases of this study are the seven major international companies including ExxonMobil, Chevron, British Petroleum (BP), Royal Dutch Shell, Total, Eni and Statoil.

Oil Demand Prediction and Perspectives of Oil-Extraction

Leading analysts predict and expect increasing of demand for hydrocarbons in the next two decades. Table 1 presents the prediction of demand for oil for the 2010 to 2030 period. According to predictions of the International Energy Agency (IEA), 90% of increase of demand for energy resources will be provided by developing countries up to year 2035. The key factor of growth over the last decade will be China's economy; India and countries of South-East Asia will make their important contribution to this since year 2025. The Near East Region will be the second biggest natural gas consumer by 2020 and the third biggest oil consumer by 2030 (after China and USA). The world demand for oil will increase from 87 million barrels per day in 2011 to 101 million barrels per day in 2035; key factors of the increase will be transportation constituent and increase of petrochemical industry (IEA, 2013). In coming six years, the biggest growth of demand for oil is predicted in China again (2.4 million barrels per day), India (1.1 million barrels per day), Saudi Arabia and Iran (0.3 million barrels per day each), Russia (0.2 million barrels per day), Korea and Mexico (0.1 million barrels per day each) (IEA, 2016).

According to the prediction of IEA, the USA will become the greatest oil- extractor in the next decade. Brazil in its turn will join the ranks of big exporters; China will turn into the biggest oil importer and consumer, including the reason of being the largest motor fleet in the world. The European Union will keep its first place among consumers of natural gas. Demand for coal in world power engineering will decrease up to 14% by 2035 in favour of cleaner energy resources (IEA, 2013).

It is remarkable that the main Funder of the Royal Dutch Shell has suddenly admitted in the conference with investors on November 3rd, 2016, that the peak of global demand for oil may be overcome already in 5-15 years. The main contribution into slowing the increase and stabilizing of world demand for oil is made by two factors: first, increasing efficiency of oil use; second, promotion of oil substitutes. In this respect, it should be noted that predictions regarding overcoming of peak of demand for oil are made for at least 25 years and these terms are being suspended permanently.

One of IEA scenarios also presumes overcoming of peak of demand for oil in the next few years. It is based on several backgrounds: the slower tempo of GDP increasing in developed countries and more rapid and deep decrease of economic growth in China (decrease of world economy growth); implementation of new energy-saving technologies, introduction of the global obliging mechanism of payment for greenhouse gases emissions. According to the mentioned scenario, world demand for oil will reach the peak of 94 million barrels per day in 2020 and then will start to decrease rapidly-down to 84 million barrels per day by 2030 and to 74 million barrels per day by 2040.

And still, main scenarios of analysts are oriented onto gradual increase of demand, for satisfaction of which the IEA predicts reasonable increase of oil-extraction in the USA and Brazil, while oil-extraction in Kazakhstan and Russia will presumably decrease. It is interesting that the agency does not expect decrease of oil-extraction in Canada, Norway and Great Britain despite its high cost (IEA, 2016; Outlook, 2016). On one hand, this contradicts the generally accepted prediction approach which defines amounts of gain resulting from cost graph; on the other hand, this is being explained by importance of the sector in countries' economy and efforts of states to preserve employment even at low oil prices.

The main share of increase of oil-extraction is being predicted based on deep marine shelf, non-traditional and stranded reserves what is connected with depletion of traditional deposits and active technology development what allows to significantly decrease net cost of extraction of stranded hydrocarbons reserves. The share of non-traditional reserves in total oilextraction may increase from 26% in 2015 up to 43% in 2030 (IEA, 2013; Outlook, 2013). More and more active works in stranded regions will naturally be followed by essential increase of capital investments.

In 2010, world natural gas consumption was 3.3 Trillion cubic meters. Prominent international analytic agencies predict the reasonable increase of demand for natural gas for over the next 20 years. Therefore, on evaluation of the IEA, consumption of natural gas will steadily grow averagely 1.7% per year and will reach 3.9 Trillion cubic meters by 2020 and 4.6 Trillion cubic meters by 2030 (Figure 1) (IEA, 2013; Outlook, 2013).

The most significant influence on the demand increase for natural gas is impacted by following factors:

  1. Increasing of consumption of electricity as a result of growth of world economy and improvement of life quality in developing countries;

  2. Development of "green power engineering" stimulating transfer to...

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