(EnergyAsia, October 27 2010, Wednesday) — Uncertain energy policy has replaced access to reserves as the top risk facing the industry across the globe in 2010, said consultant Ernst & Young.
According to its Oil and Gas Business Risk Report 2010, uncertainties in the direction of energy policy have been prolonged by the vague outcome of the Copenhagen climate conference in December 2009 and the inability of the US to adopt a clear energy policy.
The Gulf of Mexico spill of April 2010 has also further complicated policy decisions internationally. The absence of clarity around regulatory and legislative changes is creating an uncertain framework for long-term investments in the industry.
Sanjeev Gupta, Singapore Oil & Gas Leader and Transaction Advisory Services Partner at Ernst & Young Solutions LLP, said:
“Uncertain energy policy hinders operators’ ability to plan, invest and respond to supply and demand changes. Adopting an organised approach to seek political and general public support for the need for a coherent and consistent energy policy should be one of the key corporate agendas in the mid-to-long term. Further, companies need to be proactive in creating broad-based initiatives for compliance, including new reporting structures, to meet anticipated regulatory changes.”
Ensuring sufficient access to oil and gas reserves at a reasonable cost, considered the top risk in 2009, will remain a significant challenge. Many of these reserves are located in difficult environments with high exploration and production costs, increasing the risk of making new investments.
Mr Gupta said: “Knowing the alternatives is the key. Although oil will remain strategically important for some time, companies should already be looking to the future. Gas is likely to become a more significant commodity, as it is a cheaper alternative than renewable energy. The current problems with gas, its location and complex transportation, are likely to be resolved as technology improves and new infrastructure is built.”
The biggest change in the top 10 is the risk of price volatility – down to six in 2010 from number three in 2009. Oil prices in 2010 have been relatively stable due to modest consumption habits and weak developed economies easing demand pressures. However, natural gas prices are currently low as a result of oversupply.
A new entrant to the top 10 is the risk of new operational challenges, including unfamiliar environments. These challenges have grown significantly over the past year, due mainly to the increased focus on exploration and production in challenging environments such as the Arctic region and deepwater areas.
Top 10 risks for oil and gas 2010. Ranking from 2009 in brackets:
1. Uncertain energy policy (2)
2. Access to reserves: political constraints and competition for proven reserves (1)
3. Cost containment (4)
4. Worsening fiscal terms (5)
5. Climate and environmental concerns (7)
6. Price volatility (3)
7. Human capital deficit (6)
8. Supply shocks (9)
9. Overlapping service offerings for IOCs and oilfield service companies (8)
10. New operational challenges, including unfamiliar environments (new)