1.5 trillion in oil projects at risk, says Wood Mackenzie

15 October 2015 Consultancy.uk

The energy sector continues to see low oil prices, positively affecting many consumers and dependent industries but negatively affecting the viability of both energy companies, their services sector and national economies. According to an analysis by Wood Mackenzie, the cost to the energy sector in lost projects in the near term can reach $1.5 trillion.

The price of oil has seen significant falls since last year, dropping from more than $110 a barrel over the summer 2014 to less than $50 in the recent period. The drop in oil prices has provided respite for motorists, while seeing the budgets of oil producing countries enter the red. According to a report by Wood Mackenzie, a global consultancy specialised in energy, metals and mining, the drop in oil price is starting to have a significant impact on the energy resources sector. The biggest issue faced by the industry is oversupply. Since the shale gas boom in the US and OPEC’s continued high rates of production, there continues to be an oversupply of around 2.5 million barrels per day – thereby causing a resultant decrease in price.

Oil barrel

Projects delayed
The effect of lower prices is affecting companies, whose projects are often placed on hold. In the US for instance, 46 large projects have been put on hold as they are deemed uneconomical at prices below $50 a barrel. According to Wood Mackenzie up to $1.5 trillion in investments for oil projects are at risk of being lost due to the low prices in the short term, with both primary and secondary services industries affected by the changes.

In the longer term, considerably more projects will be jeopardised by the low prices, with oilfield services contractors which provide thousands of workers and equipment, such as drilling materials, forecasted to be hit hardest. The loss of skilled workers through redundancies will be particularly painful for the sector according to the report, as they will be considerably more difficult to attract back from other sectors once prices stabilise again.

According to the analysis, companies are currently looking to cut operational costs – while a recent A.T. Kearney report suggests that many companies will either be bought out, or seek to buy out infrastructure that is going cheap.

Wood Mackenzie - Oil

Global landscape
A further effect of the price slump is that energy producing nations across the board have seen their revenues shatter in a number of different ways. In the GCC region for instance, the consequence is a decrease in the available capital for investment as revenue and cash reserves plummeted. In the Abu Dhabi region, up to $200 billion in planned projects by petrochemical companies have been cancelled. Large players like Saudi Arabia and the United Arab Emirates can weather lower prices for some time due to large capital reserves, however, nations like Bahrain and Oman lack buffers and thereby may find themselves in financial strife.

In Japan the reduction in the price of oil has seen consumer goods decrease further in price, leading to additional deflationary pressure. While in Norway the decrease in oil revenues from large national players has seen the country’s central bank lower interest rates to stimulate growth. The UK too is experiencing a downturn in North Sea income, placing oil and gas sector projects under threat. South American and African oil producing countries, like Venezuela and Nigeria, too face considerable headwind in balancing their budgets as expected incomes decrease.

According to industry experts, the oil price will start to reach higher ground from 2017, as industry players find a balance between supply and their own financial needs.

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WEF finds no progress made on greening economy

01 April 2019 Consultancy.uk

The reports of two influential bodies, in the space of a day, have warned that no progress is being made to prevent major climate change. The World Economic Forum has warned that greening of the global energy transition has stagnated over last five years, while the International Energy Agency has confirmed coal use rose again last year.

The position of the Academies of Science from 80 countries, plus a majority of scientific organisations that study climate science, is that humans are causing rapid climate change – often referred to as global warming. Roughly 95% of active climate researchers publishing climate papers endorse the consensus position that since the industrial revolution, the boom in carbon emissions from fossil fuel powered human activity has heavily impacted the planet, with rising levels of CO2 and other greenhouse gases trapping heat from the sun causing global temperatures to rise – something which will have catastrophic results in the near future.

Despite the steadfast consensus among the scientific community on the matter, however, there has been little to no meaningful action to avert disaster. In fact, while the signing of the Paris Accord was met with great excitement, since it came into force, global carbon dioxide emissions have continued to rise. Today, they sit at their highest levels yet, after a strong economy and extreme weather stoked a surge in energy demand last year.WEF finds no progress made on greening economyAccording to the world’s energy watchdog, the Paris-based International Energy Agency (IEA), energy spiked by 2.3% in 2018 – the biggest leap since 2010 – with that demand largely being met with fossil fuels. As a result, global emissions of carbon dioxide hit the record high of 33 billion tonnes in 2018, a rise of 1.7% on 2017’s figures. Commenting on the findings, IEA chief Fatih Birol said the rise in energy demand was “exceptional” and a “surprise for many.”

Birol added, “We have seen an extraordinary increase in global energy demand in 2018, growing at its fastest pace this decade. Looking at the global economy in 2019, it will be rather a surprise to see the same level of growth as 2018.”

The suggestion from Birol that 2018 is likely to be an anomaly which will not be seen again is strange, considering the added strain which the boom in emissions will place on the environment. To suggest that heightened energy demand was driven by extreme weather – which is increasingly difficult to claim is unrelated to man-made climate change – and then to suggest that such a thing is unlikely to occur any time soon in spite of emissions having increased seems contradictory.

Regardless of this, the bad news was further compounded within hours of the IEA’s release. A report from the World Economic Forum released on the same day concluded that the world's energy systems have not become any greener in the last five years. Despite the agreement of global climate targets, falling green power costs, and mounting public and business concern over the catastrophic impacts runaway climate change could wreak, the WEF’s damning assessment warned that little to no progress has been made on making energy systems more environmentally sustainable since 2014.

Coal is the largest hindrance of change on this front, according to the report. Recent years have seen improvements in energy access and security, but far too many nations remain dependent on coal power for the new energy systems to have made any environmental gains. At the same time, major economies have failed to decrease or even slow the amount of energy they use per unit of GDP, leaving smaller actors who have made changes micturating into a gale. Change on the part of the world’s largest economies is therefore crucial to driving the development of a greener, more efficient global economy, the WEF concluded.

Commenting on the findings, Roberto Bocca, leader of the WEF's future of energy and materials division, said urgent action is now needed to move toward decarbonisation. He added, "We need a future where energy is affordable, sustainable and accessible to all. Solid progress in bringing energy within the reach of more and more people is not enough to mask wider failures, which are already having an impact on our climate and on our societies."

The news comes even as sustainability continues to be talked about as a ‘top agenda item’ at the majority of the world’s largest corporations. While 85% say that it will be more important still in another five years, it is clear that the majority of the world’s most powerful businesses are failing to walk the talk on the matter, regardless of what governments do.