Guest Article


In Europe, pipeline investment uncertainties may lead to renewed security of supply concerns. The UK looks rather dependent on spot LNG from Qatar, some of which could get diverted, given the wide regional gas price divergence. Germany seems headed firmly in the direction of the Russian bear’s embrace. But Gazprom has a propensity to cut exports in cold snaps to meet higher domestic demand. Gas shale production in Europe offers new supply, but may progress slower than some expect and, for now, material volumes look some way off.


Green concerns are now clearly playing second fiddle to near term economic worries. Many renewables are wobbling - as capital outlay and subsidies get too expensive and carbon targets are allowed to slide. Relatively cheap gas is also hurting investment – in both wind and solar. But perhaps lower subsidies will stimulate a real fall in costs and the strongest technologies will before long rise from the ashes. Improved, safer nuclear reactors (perhaps not sited quite so near major tectonic fault lines) may also slowly come back into favour. Overall more effective, less wasteful use of energy makes both economic and environmental good sense.


Struggle to Grow Value


Oil production growth by some of the IOC group looks to remain rather sluggish, despite raised capital spending. Large legacy positions in declining mature production do not help. What growth there is - is in gas, often adding less value. More costs and delays of increasingly more difficult projects (such as the Arctic) require more funding and usually have lower margins. Exploration spending is also rising for most, but the largest finds remain concentrated in 5 or 6 key countries, mostly controlled by their NOCs. This suggests more dependence on upstream growth by M&A, just as the Chinese are already doing – rather effectively, but at high cost.


Those that do well will be those ready for the unexpected, able to recognise and respond fast and decisively to early signals and still able to deliver their major projects as planned. Well positioned, proactive and increasingly capable E&P independents look likely to do best. Some energy players need to develop and communicate more compelling strategies to attract the investment they need.


Making Choices


We’ll see elections, selections and referendums - of various sorts - in Russia, France, Egypt, Palestine, Pakistan, Kenya, Mexico, Venezuela, China and the US. These, with likely changes of leadership elsewhere, make for policy uncertainty. In the UK, apparently more English think Scotland should be independent than Scots do themselves.When and if that happens, Scottish legislators may be tempted to tax the still significant remaining oil a wee bit more – at least until they, like their counterparts to the south, see how sensitive investment can be to uncertain returns. More broadly, as China, India and other growing economies stretch the world’s resources, we in the West need to decide how best to develop our own strengths to prosper as the world evolves and grows.


We are in for a year full of energy, passion and surprises. There’ll be lots of sport to watch in the UK and, perhaps a stronger incentive to get fitter and leaner: the costs of Greek holidays and retsina are likely to be distinctly lower by summer! As you progress your own plans in 2012, have an enjoyable, productive and rewarding year ahead.


Hugh is a London-based Senior Consultant with CRA Marakon, a distinctive corporate strategy firm with a strong track record of helping leadership teams add real value. Before becoming a VP with CRA International, he worked as a Partner in Arthur D. Little’s Global Energy Practice, based originally in London and then in Houston, where he led and grew ADL’s upstream business for six years. Hugh has over 30 years of global experience in the energy business. His main areas of expertise are upstream strategy, competitive analysis and portfolio growth options in oil and gas.


Originally an explorer with BP in the UK, Egypt and San Francisco, his experience includes five years with Chevron, working in business planning, exploration and development, and with Hess, as it rapidly grew its upstream position in the North Sea. Hugh holds an M.B.A. from LBS and has published a number of articles on the outlook for energy companies, resources, and supply and demand drivers.


CRA Marakon is a high-end strategy and organisation management consulting boutique. Marakon, now part of CRA, brings uniquely tailored and integrated advice to its clients, backed by rigorous analysis, holistic thinking and strong industry experience. Our practice has evolved over 30 years and maintains a high degree of integrity, objectivity and focus.


Marakon has been described by Fortune magazine as “the best kept secret in consulting”. We work with senior management teams of highly ambitious multinationals and mid-sized companies to help them deliver superior results and accelerated value growth. Many of our long-standing http://www.crai.com/


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Drillers and Dealers :::


::: February 2012 Edition


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