At the Bloomberg Link Energy Summit in Washington, DC, in February 2014, General Electric's CEO, Jeffrey Immelt, stated in his keynote on 'the Age of Gas' that “by 2025, the world gas demand will increase [to] 36% more than is produced today”. In a press conference at the same event, GE and Norwegian energy company Statoil announced their partnership in a pilot project that aims to capture natural gas flares (the burning of natural gas that cannot be processed or sold) at well sites around the Bakken Basin in North Dakota, US.
According to North Dakota’s governor, Jack Dalrymple, the pilot project is “an incredible opportunity to capture what is valuable today in flares”. It is estimated that 30% of gas output is wasted due to flaring.
The pilot project will capture flares and convert emissions into a revenue stream of compressed natural gas (CNG) with GE’s 'CNG in a box' mobile units. The plan is to replace diesel fuel in trucks and build a network of CNG fuelling stations. The programme, one of several new projects in the oil and gas sector, will expand to other shale plays around the US before being exported worldwide.
In the pipeline
An estimated $1bn of private equity capital has been invested in pipeline projects in the Marcellus shale gas play in the east of the US. When finished, the pipelines will deliver water – not oil or gas – from rivers in Ohio and Pennsylvania to the well pads, plots of land that have been cleared for drilling, since the cost of moving water by truck for the water-intensive 'fracking' process has become prohibitively expensive. In China, where gas pipelines are starting to be built in preparation for the tapping of its large shale formations, a lack of access to, or the infrastructure to transport, the huge volumes of fresh water needed to start fracking, has meant that the country has not been able to start tapping its large reserves yet.
According to recently released US Energy Information Agency data, the US fracking boom was shown to have contributed 10% of energy supply in 2013. Going forward, shale is expected to account for a growing proportion of global supply as other countries, from Poland and Ukraine to those in Africa and South America, overcome logistical and technical challenges and realise the potential of their shale resources.
According to data from greenfield investment monitor fDi Markets, $21.17bn was invested in 217 new oil and gas projects between January 2012 and January 2014. More than a dozen new projects have been recorded so far in 2014. These include a number of new liquefied natural gas (LNG) projects that are coming online. In March 2014, the US announced plans to speed up its review of pending LNG export applications, so that the country could ship gas to Europe and in particular Ukraine, helping lessen the region's reliance on Russian supplies.
Meanwhile, UK-based Tethys Petroleum is investing in an extraction project, as well as the rehabilitation of active oil and gas fields in Tajikistan. On Tajikistan, Dr Anders Corr of political risk analysis firm Corr Analytics says: "Political risk in Tajikistan is primarily from high level corruption." Indeed, Transparency International ranked the country 154th out of 177 countries in its 2013 index. According to Mr Corr: “A public human rights record also subjects investors to reputational risk, which is sticky and persists across issues over time."
On the opportunities in Africa and Brazil, Evodio Kaltenecker, professor at the BBS Business School in São Paulo, says: “Brazil is much more stable than Venezuela or Africa. I visited Angola a few months ago and I would feel safer investing in a country such as Brazil than in Angola, Ghana or Nigeria.”
Mr Corr adds: "Risk for investors in west Africa includes criminality, corruption and competition with Chinese interests. Chinese companies are some of the biggest foreign investors in west Africa, and non-Chinese investors will experience stiff competition in oil and gas."
On Brazil, Mr Kaltenecker adds: “I don’t see political risk in Brazil. The outlook for foreign investment in Brazil is strong. Between 2013 and 2017, Petrobras will invest $147.5bn in exploration and production. Brazil froze oil prices internally to avoid an increase in inflation, hurting Petrobras revenues and cash flow, since the company is not allowed to transfer to the population the real cost of imported oil.” When Brazil auctioned a new offshore block, there was just one bidder: a consortium led by Petrobras and two Chinese state-owned oil corporations.
Peru is another country increasingly appearing on the radars of energy companies. Mr Corr says: "Peruvian oil exploration and production experiences sustained risk from indigenous and environmental groups. This includes conflict over water resources and perceived threats to rainforest ecology.” Peru is addressing the issue by decreasing regulatory hurdles.
When it comes to the Middle East, according to Iran expert Reza Yeganeh: “On March 12, 2014, Oman signed a preliminary agreement with Iran to build a $1bn, 200-kilometre submarine pipeline to import gas from Iran. The project will be fulfilled in late 2017, with Iran exporting 10 billion cubic metres of gas per year to Oman.”
Mr Yeganeh notes that oil and gas is Iran’s main industry, but it is not the only one. “Iran exports $170m of food [to Oman], industrial and electrical products, as well as engineering services to build infrastructure projects,” he says. Iran is still subject to a series of international sanctions. Of these, Mr Yeganeh says: “South Korea nearly doubled its import of Iranian oil to 290,714 barrels per day in February 2014.” Sanctions have hurt Iran’s banking sector, but they have not prevented the world’s 27th largest economy from growing.
On foreign investment in Iran, Mr Yeganeh says: “The biggest potential for investment is the traditional contracts that Iran National Oil Company signs with foreign companies. The new Iranian oil minister is pursuing changes in contracts to increase the interest of foreign investors, by raising their shares of the products.”
When it comes to global risks to the industry, Mr Corr says: "The biggest political risks to watch for are increased instability in Asia, from China and North Korea, increasing socialism in Latin America, repercussions from the expansion of the Syrian civil war, and increased conflict between the [NATO countries] and Russia." Perhaps the greatest risk to investors in the oil and gas sector is not to invest at all, and miss out on a growing market.