Report highlights key issues going forward

Some key themes are likely to impact on the energy and resources sector in 2012, according to the Deloitte Touche Tohmatsu Ltd (DTTL) Energy & Resources Predictions 2012 report released recently. At least one of the key developments in the oil industry, expanding oilfields in West Africa, holds out some real opportunities for the South African economy.

Key issues highlighted in the report include volatility in commodity prices, breakthroughs in nanotechnology, new technologies in oil recovery, future of oilfield services, and the rising importance of water footprint for energy companies, which the report claims will be one of the main themes throughout 2012.

“Over the last 12 months, there has been no shortage of themes impacting energy and resources globally,” said Carl Hughes, Global Lead, Energy & Resources DTTL, at the time of the release of the report.

“From the impact of the Arab Spring on oil markets to rising commodity prices to the heated debate over the future of nuclear power, these themes are as  diverse as they are geographically dispersed and they serve as an underlying current in this year’s report,” he said.

The report outlines 10 predictions that could impact the energy & resources sector:

• Prices of rare-earth metals are to remain high, but volatile. As supplies continue to be tight and consumer and business demand for everyday products, including clean technologies, remain robust, prices for rare-earth metals will likely remain high, yet volatile for several years;
• Demergers among integrated international oil companies are likely to continue. The report suggests that for the last 50 years, the vertically integrated oil & gas company model has reigned supreme. This model has served the industry well but some are challenging the status quo by splitting their upstream and downstream operations into separate units;
• The coming energy breakthroughs using nanotechnologies. The report suggests that nanotechnology research will continue unabated over the long term with some economists predicting a US$1 trillion global market for nanoproducts over the next 10 to 15 years with implications for the energy sector: Rooftop solar panels could become obsolete simply by converting sunlight into electricity via a paint-like substance that can be sprayed on rooftops;
• The ‘Golden Age of Gas’ for future natural gas markets. According to the report, gas will become the fuel of choice for several reasons: tightening environmental regulations, expectations of ample supply at competitive prices, and the need to back up intermittent renewable sources such as wind and solar to ensure reliability;
• The corporate water footprint: the next ‘tipping point’ for energy companies. According to a recent Globescan/Circle of Blue survey, water-related themes represented the number one and number two concerns identified, with even climate change ranked sixth. The report outlines steps that energy & resources companies can take now to seize control of their water footprint.
• Who owns the Arctic and the South China Sea? Oil and gas companies have always dealt with risk, but recent events in the South China Sea demonstrate how geopolitical risks pose problems for the oil and gas industry. Increasing consumption and demand has led companies to search for new reserves in areas without well-defined borders where geopolitical disputes could be imminent, specifically the South China Sea and the Arctic. Despite risks to establishing operations in these areas, the potential rewards could be immense;
• Solar-enhanced oil recovery. Whilst still in its infancy, solar-enhanced oil recovery has the potential of revolutionising enhanced oil recovery due to the low estimated cost of glasshouses and the price of producing steam, according to the report. The technology is expected to show the most promise in areas where there is an abundance of sunlight and oil is heavy in nature;
• Energy use and the great recession of 2008-2009. The report suggests that the energy marketplace has changed as a result of the recession of 2008-2009 and the continued slow economic growth in many parts of the world. The report outlines some of the key findings of the Deloitte Resources 2011 Study, which provides insights to help organisations make energy-related investment and business decisions;
• The future of oilfield services. Based on 40 Deloitte interviews with executives of offshore oil & gas companies across all continents and all stages of the value chain, the report predicts that the complexity of the offshore value chain will continue to grow substantially in the next decade and increasing complexity may very well trigger a new round of industry consolidation; and
• Piracy on the high seas. Piracy has taken on a whole new meaning in the 21st century. Instead of swords, pirate ships and chests of gold, it is machine-guns, speedboats and large oil tankers. With 20% of the world’s commercial shipping passing through the Gulf of Aden and the Suez Canal, piracy has a big impact on economies, especially in Europe. The report outlines the financial impact of piracy on oil and shipping balance sheets.

At a South African briefing on the report Southern Africa oil and gas industry leader Anton Botes argued that South Africa’s geographical proximity to the expanding West African oilfields, together with its deep-water harbours and its engineering expertise, offered favourable conditions for a material expansion of the country’s oilfield services sector over the coming decade, reports Engineering News.

He said that there was particular potential to develop sizeable services industries at the ports of Cape Town, Saldanha Bay and Ngqura in South Africa and Walvis Bay in Namibia.

(The DTTL-report can be viewed at www.deloitte.com/energypredictions2012 )