The upstream oil sector is an international market, with investment and operational decisions increasingly determined against world norms, heavily influenced by both the current world oil price and anticipated price for its impact on new field developments.
The volatility of the oil price has led to changes in the structure of the oil sector, encompassing both the oil companies and their various contractors. In particular there has been consolidation both horizontally and vertically in the traditional contracting supply chain.
The upstream oil and gas sector is an international market, with investment and operational decisions increasingly determined against world norms, heavily influenced by both the current world oil and gas price and anticipated price for its impact on new offshore and inshore field developments. The volatility of the oil price has led to changes in the structure of the oil and gas sector, encompassing both the oil companies and their various suppliers and contractors. In particular there has been consolidation both horizontally and vertically in the traditional contracting oil and gas supply chain.
Every day the world consumes over 75 million barrels of oil and 6 billion cubic metres of gas. This rate of consumption further depletes the planet's finite quantity of fossil fuel.
Continued world economic growth, particularly assuming there are no major downturns in world regions (as in Russia and SE Asia in 1998 / 1999), will lead to increased demand for oil and gas.
With limitations on the spare production capacity available world-wide at present, increased world demand will certainly require increased development activity in both OPEC and non-OPEC countries. Thus it is expected that world investment in exploration and production facilities will rise.
The level of activity in any one country is influenced generally by the expectation on oil price, and local conditions reflecting the country's competitive position with respect to others.
Local conditions generally, the attractiveness of the oil province geologically (indicated perhaps by recent discovery rates and size of discovered fields), legislation affecting conditions and taxation on developments, and the confidence in political system and proximity to markets are all factors to be taken into account.
Whilst gas field exploration and developments use similar technology to oil, the gas sector is different economically. The high cost of transporting gas (up to ten times the cost of transporting oil) means that gas field developments cannot be considered in isolation, but need to be developed in conjunction with investment in transportation infrastructure (pipelines or liquefaction systems) and the related demand markets.
Thus gas prices and contracts are often specific to a locality - country or region. The exception to this is where the gas sector - markets and infrastructure are well developed - as in the UK, Europe and US - where, with suitable de-regulation, there can be more of a genuine market-driven price.
There is increasing interest in gas world wide, with demand for gas currently growing and forecast to grow at a higher rate than oil over the next two decades. This is being driven partly by the availability of gas and its attractions on environmental grounds. It is also leading to increasing interest and development of Gas To Liquids technology in which gas is converted to a more concentrated liquid form to facilitate the exploitation of remote and smaller gas reserves.
Major oil companies such as Shell are moving into gas, seeing declining business opportunities in non-OPEC countries. Further, the importance of power generation as a market for gas is encouraging companies to become involved in both gas and power utilities.
Field developments will be matched by investment in major transportation systems, either liquefied natural gas(LNG) or pipeline, in regions such as SE Asia, South America and linking Central Asia / Middle East to Europe.
There is a long term trend of refineries being built more in developing and petroleum producing countries and away from developed, consuming, countries, as producers seek to increase their added value and developing countries seek to reduce their dependence on imports.
The developed world's refineries operated efficiently and profitably while oil prices were low (cheap feedstock) and supply readily available. Subsequently, with tight oil supplies, higher feedstock prices and pressure from consumers on prices, they are operating less profitably. However, refineries in other parts of the world, especially SE Asia, have suffered from low demand in recent years, leading to continuing low margins.
Demand for new refineries is limited, generally driven by national policies on adding value with products from crude oil, or meeting national demand for refined products from indigenous production capacity. However, there is an ongoing requirement for the upgrading of refineries to improve and revise the product mix and to meet more exacting environmental standards. The demands for different products in the automobile sector are an important driver in this.