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Oil and Gas Industry

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Major Industry Trends


According to the US Energy Information Administration rising crude oil production in the United States contributed to relatively stable global crude oil prices in 2013, at around the same annual average levels of the previous two years. West Texas Intermediate (WTI) spot prices averaged US$98 per barrel (bbl) in 2013, up 4% from 2012 and the highest annual average since 2008. New pipeline and railroad infrastructure alleviated transportation constraints that had put downward pressure on WTI prices. The North Sea Brent Crude spot price averaged US$109/bbl, down 3% from 2012. Brent prices came under downward pressure as rising US light sweet crude oil production reduced the need for US imports, thereby increasing supplies of Brent-quality crude oil to the global market. Both WTI and Brent Crude are valued for their low-density, low-sulphur characteristics and are used as pricing benchmarks.

The EIA added that price volatility in 2013 was at the lowest level seen between 2006 and 2013, as many of the factors that had been driving instability in oil prices were mitigated. For example, despite disruption to Libyan production, Saudi Arabia maintained its output, thus helping to support global supply. Rising US oil production also helped to offset some of the losses of oil supply on world markets, resulting in supply being more in line with market expectations, according to the EIA.

The development of shale oil resources in the United States is transforming the global oil and gas industry. The EIA said in early 2014 that total US crude oil production averaged 7.5 million bbl/day in 2013, 967,000 bbl/day more than 2012 and the highest level of US production since 1989. In December 2013, US crude oil production reached 7.9 million bbl/day, according to the EIA’s “Petroleum supply monthly” data for December 2013, an increase of 785,000 bbl/day (11%) compared with December 2012.

The 15% increase in US production from 2012 to 2013 was the largest annual percentage increase since 1940, according to the EIA. The increase in domestic production supported high refinery utilization rates, reduced US imports of crude oil, and changed domestic and global crude oil and petroleum product trade flows, the agency added.

In March 2014, the EIA projected US production to average 8.4 million bbl/day in 2014, an increase of 0.9 million bbl/day. In 2015, it projects US oil production to rise by an additional 0.8 million bbl/day to average 9.2 million bbl/day, close to the historical peak of 9.6 million bbl/day reached in 1970. The agency believes that crude oil production growth will be concentrated primarily in the Bakken (North Dakota), Eagle Ford (south Texas), and Permian (west Texas) formations through 2015. It also forecasts Gulf of Mexico production (1.3 million bbl/day in 2012) to rise in the near term, increasing by 140,000 bbl/day in 2014 and by an additional 210,000 bbl/day the following year to average 1.6 million bbl/day in 2015.


The International Energy Agency (IEA) expects that the United States will overtake Russia as the world’s biggest gas producer by 2015, again thanks to fracking. In December 2012, Royal Dutch Shell’s chief executive Peter Voser said that the US economy is set for a revolution as the country becomes self-sufficient in energy. He and other experts have argued that an abundance of low-cost energy will drive the reindustrialization of the economy. However, the shale revolution is not without its critics. Environmentalists fear that it could increase seismic risks and pollute drinking water. However, US officials question these concerns and say that thanks to the higher proportion of gas use the United States has had its lowest carbon dioxide emissions in 20 years.

Interest in exploiting shale gas reserves is spreading across the globe. In early 2013, Shell signed a US$10 billion shale gas deal with Ukraine—the biggest contract yet in Europe—which could help Ukraine to ease its reliance on Russian gas imports. Ukraine has Europe’s third-largest shale gas reserves at 42 trillion ft3 (1.2 trillion m3), according to the US Energy Information Administration. Its reserves are dwarfed by those of France, estimated to be Europe’s largest at 180 trillion ft3. However, France has banned fracking. By contrast, the German government of Chancellor Angela Merkel wants to jump-start the extraction of shale gas deposits in the country, essentially ending a hold on the practice due to public concern and safety worries. However, in November 2013, the new coalition government in Germany agreed to ban fracking until environmental issues are resolved.

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Market Analysis


Global oil reserves rose by 31 billion barrels to 1,669 billion barrels in 2012, according to BP’s Statistical review of world energy 2013. An increase in official Iraqi reserves was the single largest addition, adding 6.9 billion barrels. Proved reserves remain concentrated in OPEC countries, which control 72.6% of the world’s oil reserves. Global proved reserves have increased by 26%, or nearly 350 billion barrels, over the past decade. The global reserves-to-production (R/P) ratio stood at 52.9 years at the end of 2012, up from 48.3 years a decade previously.

According to BP, in 2012 global oil consumption grew by 890,000 bbl/day, or 0.9%—below the historical average. Oil showed the weakest global growth rate among fossil fuels for the third consecutive year. Consumption in member countries of the Organisation for Economic Co-operation and Development (OECD) declined by 1.3% (530,000 bbl/day), the sixth fall in the past seven years, and the OECD now accounts for just 50.2% of global consumption, the smallest share on record. Outside the OECD consumption grew by 1.4 million bbl/day, or 3.3%. China again recorded the largest increment to global consumption (+470,000 bbl/day, +5%), although the growth rate there was below the 10-year average. Japanese consumption grew by 250,000 bbl/day (+6.3%), its strongest growth increment since 1994.

By contrast, BP said that global oil production increased by 1.9 million bbl/day, or 2.2%. OPEC accounted for about three-quarters of the global increase despite a decline in Iranian output due to international sanctions. Meanwhile, Libya regained nearly all of the ground it lost in 2011. For a second consecutive year, output reached record levels in Saudi Arabia, the UAE, and Qatar. Iraq and Kuwait also registered significant increases. Non-OPEC output grew by 490,000 bbl/day, with increases in the United States (+1 million bbl/day), Canada, Russia, and China offsetting unexpected outages in Sudan/South Sudan (–340,000 bbl/day) and Syria (–160,000 bbl/day), as well as declines in mature provinces such as the United Kingdom and Norway.

In March 2014, the IEA said that the increase in global consumption would require a higher average level of crude this year from the OPEC countries than previously expected. It said that OPEC, which is responsible for about 40% of world oil supplies, will need to provide 29.7 million barrels of crude a day in 2014.

The IEA said that in February 2014 OPEC’s 12 members boosted output by 500,000 bbl/day to 30.49 million bbl/day, helped by a surge in Iraqi exports, which pushed the organization’s production above its 30-million bbl/day ceiling for the first time in five months. Iraq’s production climbed by 530,000 bbl/day to 3.62 million bbl/day, the largest increase since 1979, while that of Saudi Arabia, the group’s biggest producer, rose 90,000 to 9.85 million.

Although developing nations will account for all of the expansion in demand in 2014, the pace of growth in China and other emerging nations is slowing, the IEA said. Unusually cold weather in the United States in winter 2013/14 helped to cause a “staggering” drop in oil inventories among developed nations, which fell by 13.2 million barrels to 2.6 billion in January 2014, a month when they normally accumulate. Supplies in OECD countries were 154 million barrels below their seasonal average at the end of January, the largest deficit in more than a decade.

“An improving supply outlook partly offsets these recent draws,” with supplies from outside OPEC rising at the fastest pace since the early 1990s, the IEA said. Non-OPEC production, driven by the United States, Canada, and Brazil, will climb by 1.7 million bbl/day this year to 56.4 million bbl/day, an estimate unchanged from last month’s.

BP’s Energy outlook 2035, published in early 2014, said that demand for oil is expected to be the slowest growing of the major fuels to 2035, with demand growing at an average of just 0.8% a year. Nonetheless, this will still result in demand for oil and other liquid fuels being nearly 19 million bbl/day higher in 2035 than in 2012. All the net demand growth is expected to come from outside the OECD—growth in demand from China, India, and the Middle East will together account for almost all net demand growth.

Growth in the supply of oil and other liquids (including biofuels) to 2035 is expected to come mainly from the Americas and the Middle East. More than half of the growth will come from non-OPEC sources, with rising production from US tight oil (shale oil), Canadian oil sands, and Brazilian deepwater and biofuels more than offsetting declines in mature sources elsewhere. Increasing production from new tight/shale oil resources is expected to result in the United States overtaking Saudi Arabia to become the world’s largest producer of liquids in 2014. US oil imports are expected to fall by nearly 75% between 2012 and 2035.

OPEC’s share of the oil market is expected to fall early in the period, reflecting growing non-OPEC production together with slowing demand growth due to high prices and increasingly efficient transport technologies. OPEC market share is expected to rebound somewhat after 2020.


Global natural gas reserves stood at 187.3 trillion m3 at the end of 2012, according to BP. Proved reserves declined by 0.3% relative to end-2011 data, the first annual decline in BP’s data set. Revisions were made to the earlier published estimates for proved reserves in the former Soviet Union countries, which lowered those countries’ R/P ratio to 71 years, from 96.3 years at end-2011 in the previous year’s edition of the BP report.

Analysts such as BP expect global gas demand to grow rapidly over the coming decades. The key drivers of this growth will be:

  • aggressive gas usage plans in China and India;

  • the emergence of domestic shale gas as a preferred fuel source in the United States;

  • the discovery and utilization of gas resources in Latin America;

  • the move away from nuclear power in Japan and some European countries in response to the Fukushima Daiichi nuclear power plant accident;

  • Europe’s continued process of greenhouse gas emissions reduction;

  • Russian plans to gasify its Far Eastern region;

  • the search for shale and other unconventional gas resources in currently gas-poor countries.

In 2012, according to BP, world natural gas consumption grew by 2.2%, below the historical average of 2.7%. Consumption growth was above average in South and Central America, Africa, and North America, where the United States (+4.1%) recorded the largest increment in the world. In Asia, China (+9.9%) and Japan (+10.3%) were responsible for the next largest growth increments. Meanwhile, global natural gas production grew by 1.9%. The United States (+4.7%) once again recorded the largest volumetric increase and remained the world’s largest producer. Norway (+12.6%), Qatar (+7.8%), and Saudi Arabia (+11.1%) also saw significant production increases, while Russia (–2.7%) showed the world’s largest decline in volumetric terms. BP added that the global trade in natural gas was very weak, growing by just 0.1% in 2012.

In its “Energy outlook 2035” publication, BP said that natural gas is expected to be the fastest growing of the fossil fuels, with demand rising at an average of 1.9% a year. Non-OECD countries are expected to generate 78% of demand growth. Industry and power generation account for the largest increments to demand by sector. LNG exports are expected to grow more than twice as fast as gas consumption—at an average of 3.9% per year and accounting for 26% of the growth in global gas supply to 2035.

Meanwhile, BP forecast that shale gas supplies would meet 46% of the growth in gas demand and account for 21% of world gas production and 68% of US gas production by 2035. North American shale gas production growth is expected to slow after 2020 and production from other regions is expected to increase, but in 2035 North America is still expected to account for 71% of world shale gas production.

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Further reading on the Oil and Gas industry



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