Challenges in Oil & Gas Industry

Topics: Petroleum, Peak oil, Energy development Pages: 17 (5108 words) Published: August 10, 2013
Current & Emerging Challenges in Global Oil & Gas Industry
Submitted By: ABHISHEK KUMAR ROLL – 02 PGDM - IB

Under the Guidance of: Prof. C P JOSHI
HOD (Strategy, International Business & General Management)

Current & Emerging Challenges in Global Oil & Gas Industry

1. Topic: Current & Emerging Challenges in Global Oil & Gas Industry

2. Objective: This seminar paper aims to briefly analyse the current challenges faced by Global Oil & Gas companies and its impact on the global energy sector

3. Methodology Used This Seminar paper will primarily be based on the secondary research. Newspaper articles, case studies and industry magazines & Journal will largely constitute the seminar paper contents.

ABHISHEK KUMAR

Roll -02

PGDM –IB 2011- 13

Page 1

Current & Emerging Challenges in Global Oil & Gas Industry

4. Introduction When oil prices reached a record high of almost $150 per barrel in July 2008, industry stakeholders recognized that prices would ultimately slip. No one however, predicted the speed or severity of the fall. By January 2009, prices dropped to $40 per barrel. Upstream companies that had committed themselves to higher cost found themselves saddles with unsustainable production cost. As approval for new projects ground to halt, downstream companies also began experiencing the ill effects of global financial crisis. Natural decline rates in existing field average roughly 7 % globally, which reduces annual supply capacity by approximately six million barrels per day. Post- recession resumption in the massive growth rates in countries like China & India promises to quickly reverse the recent drop in global consumer demand. Cost of regulatory compliance remains set to rise, especially in United States, as it steps up plan to reduce greenhouse gas emission aggressively. Retirement rates in oil & gas industry and talent crunch also are some other key challenges which need to be addressed. To address these challenges, oil & gas companies cannot afford to be side-tracked by short term trends. They must take a long term view as they tackle their cost cutting and process improvement initiatives. More than that, they must identify viable options either to grow or simply sustain their business – from exploring for new reserves and attracting new talent to engaging in strategic partnership, mergers & acquisition. Through this paper, I have tried to analyse the major challenges which concerns the Oil and Gas Industry in current world scenario

4.1

Supply shortages due to Global Economic Slowdown

The oil and gas sector requires tremendous and continuous investment to maintain and grow reserves in the face of accelerating depletion rates from the world’s known oil field. While some international and bigger oil companies have the option to finance the projects and exploration through cash flow, mid-tier organizations, independent and downstream ABHISHEK KUMAR Roll -02 PGDM –IB 2011- 13 Page 2

Current & Emerging Challenges in Global Oil & Gas Industry

providers traditionally rely on debt and equity financing. Although this model has worked to the industry’s benefit for years, the global financial crisis is now taking a toll on companies of all sizes. Tighter credit markets are impelling smaller operators to defer expansion or capital projects, limit development and even sell off assets. In the past few years, some companies have failed to raise enough capital through their IPO due to lower oil prices and lower demand due to economic slowdown1. Forty-three companies from the Commonwealth of Independent States (CIS) have postponed or pulled their flotation this year, said PBN, a consultancy with a focus on Russia and the CIS. While limiting capital investment may placate shareholders in the short term, failure to replace resources can result in insufficient production to meet long term demand. Despite slower growth, the International Energy Agency still forecasts world primary energy...
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