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EY Research Report Looks at Global Energy Market
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HOUSTON -- The surge in U.S. oil and natural gas production -- primarily from unconventional resources such as shale gas and light, tight oil, made the United States the oil and gas industry's largest source of growth. The country looks to be a net exporter of gas within the next two to three years, while net oil import dependency has been sharply reduced, finds the EY Oil & Gas Center's U.S. Quarterly Outlook.
The potential opening of Mexico's energy sector will present the United States with some investment competition and may move capital away from U.S. unconventional plays, the report finds. At the same time, global gas and LNG (liquid natural gas) exports also play a significant role in impacting the unconventional landscape.
"The surge of the U.S. energy market really was a game changer in a relatively short time," said Deborah Byers, the oil and gas leader for Ernst & Young LLP. "And we think those changes will continue to play out in 2014. On the oil side, given the expected capacity growth in OPEC and the continuing growth of non-OPEC output, we're probably looking at some downward pressures on oil prices. But on the gas side, we see the market coming into more balance, offering prospects for some upward pressure on gas prices."
Global oil prices drifted down over the last quarter of 2013 as the global supply/demand balance loosened, largely due to continuing strong increases in non-OPEC oil production, the report found. However, recurring security problems in Libya and Iraq limited some supplies, easing some of the pressures on OPEC, given the still relatively weak oil demand environment. The possibility of a return on some Iranian exports as a result of the compromise late in the year, in conjunction with expected additional non-OPEC supply increases, does put some additional pressure on OPEC to maintain production discipline and possibly cut back production in 2014.
In the United States, the massive infrastructure build-out had removed much of the price distortions that had been dominant over the last few years, but as U.S. production continued to surge, the "surplus" was simply shifted south from the Midcontinent to the Gulf Coast, aggravated by the effective ban on crude exports (minimal crude exports are allowed to Canada). As a result, some of the price distortions have returned, according to the report.
U.S. gas producers celebrated the arrival of an early cold winter, which took gas storage levels below normal for the first time in years and brought prices up close to $4.50 per million BTUs. U.S. gas production remains relatively high and the higher prices will incentivize further production, while at the same time, the higher gas prices have slowed the switch from coal to gas in the power sector.
Total global rig counts remain relatively flat and generally below year-earlier levels. As they had throughout 2013, rig counts in the United States continue to disappoint. In contrast, international rig counts have continued to increase fairly steadily. Upstream operators are seen to becoming more cautious in their spending plans, and while spending is expected to continue to increase in 2014, the increases (5% to 7%) are expected to be less than those estimated for 2013 (8% to 10%), according to the report.
Published by The Business Journal, Youngstown, Ohio.
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