Chicago Council on Global Affairs, 13 June 2013
Vance Scott, leader of
A.T. Kearney'sOil & Gas, Chemicals, and Energy Practices in the Americas, moderates this panel discussion about today’s historic opportunity for American competitiveness in the global economy because of the shale gas revolution.
Noncompliance can ruin corporate reputations, shatter financial performance, and destroy careers, families, and lives. With so much to lose, doesn't compliance deserve our undivided attention?More
Supply chain performance is a measure of competitive advantage—both immediate and long term.
Today, CEOs and supply chain executives continue to ask important questions:
- How do we control mounting complexity?
- How can we balance size and efficiency with flexibility and responsiveness?
- Is it possible to plan for demand volatility?
- Which of the many companies in our supply chains should be our closest and most trusted partners?
Answering these questions requires taking a closer look at the pressures on today's supply chains, the different improvement measures available, and the reasons why companies often fail to take the appropriate measures.
Executives know they need to improve their supply chain performance and that simply cutting costs and improving service is no longer a viable option. Yet those who move beyond the basics to take the larger leap of seeking transformative change often fall short. There are several reasons why:
- After picking the low-hanging fruit, what's next?
- Benchmarking is analogous to goal setting.
- Trouble getting past unfulfilled promises.
- Measuring beyond cost and service.
Next, supply chain objectives must be closely aligned to overall business objectives, especially if the goal is to gain competitive advantage. At this level, it is important that your supply chain capabilities can carry you into the future.
Once you are looking beyond cost and service and including "new" capabilities among your strategic targets, the result is increased and growing competitive advantage.Close
Recent discoveries of major gas and oil deposits in southern Africa could dramatically improve the prospects for the region.
Scattered pockets of natural gas off the coasts of South Africa and Mozambique were all that southern African countries seemed to offer in terms of oil and gas resources. That changed in 2010 and 2011, when a potential 500 trillion cubic feet of gas was identified across Mozambique and South Africa, along with 11 billion barrels of oil in Namibia. Together, these countries’ gas reserves equal those of Canada or Venezuela.
The discoveries present major opportunities for South Africa, Mozambique, and Namibia—from reducing the cost and carbon intensity of power generation to creating a supply of chemical feedstock to drive manufacturing development. Chemical companies have the most to win from the exploitation of gas in the region. With a looming worldwide oversupply of chemical capacity, only regions with a source of local, low-cost feedstock will stay competitive. Southern African gas offers that opportunity.
This paper examines some of the economics of oil and gas in the region, considers their possible impact, and offers recommendations for handling these resources.Close
- Natural Gas & Electricity, January 2013
The immediate risks of major or catastrophic incidents require augmenting your longer-term PSM programs with specific short-term actions to identify the highest risk exposures.
©2013 Wiley Periodicals, Inc., a Wiley company
The U.S. shale gas market is out of balance, with production outstripping demand. When the glut ends, how will the market shake out?
Despite all the talk about shale gas development—the potential environmental consequences of hydraulic fracturing, the potential to replace coal with gas for generating electricity, the potential for the United States to export liquefied natural gas (LNG)—none of it addresses the bigger picture: The market is structurally out of balance, and it can’t stay this way. The technological triumph of shale gas has led to production that far outstrips demand, and if this were a normal market, price and demand shifts would have already delivered a quick rebalancing.
But shale gas is not a normal market and a rebalancing is not likely in this complex ecosystem where a wide array of players have diverging incentives and investment horizons. Over the past 20 years, gas prices have fluctuated between $2 and $15 per million BTU. At the low end, the producers are not viable, and at the high end, users of gas cannot afford to use it. Will we face more years of such fluctuations before achieving balance, especially since numerous decisions affecting that balance are still up in the air? And yet, bets must be placed now. Infrastructure must be built. With fortunes to be made or lost, these decisions must be as informed as possible.
If supply and demand were stable and investment cycles were shorter, it would be easy for market forces to align them. But the U.S. market for natural gas and NGLs is driven by several diverse and unpredictable variables: the global economy, oil prices, energy and environmental policies, a rise in the global gas supply, or technological advances that are still unknown. Although these variables could interact in any number of permutations, our analysis finds five scenarios that could capture a range of potential outcomes. The most likely scenario, which we call free markets, involves the least dramatic changes from current conditions. In this scenario, GDP growth is modest, oil prices remain within current trading ranges, LNG export becomes a reality, and no major global natural gas production or technological advance affects the balance of forces seen today.
We believe the price of natural gas in the free-markets scenario will find equilibrium by 2020 in the $6 to $7 range. Any lower than that and production from dry-gas wells would not be profitable and would not increase sufficiently to meet demand; any higher and demand from power plants will wane. But in this range, demand is high in all major sectors, leading to high margins for producers and strong capital investments.
Although the free-markets scenario is the most likely in our analysis, the outcome of global events and governmental actions could lead us down other paths. There are four other possible scenarios:
- Troubled times. A geopolitical event triggers a disruption in oil supply, sending oil prices up and the global economy into a double-dip recession. Natural gas demand collapses to 20 percent below the free-market scenario level.
- Limited export. The U.S. government decides to limit natural gas exports and provides support for other fuels in an effort to achieve energy independence, thus depressing natural gas demand.
- Global gas competition. Other major economies are successful in developing wet shale plays. As a result, demand falls for both LNG exports and ethane-based chemicals from the United States, challenging the overall economics of shale gas plays in North America.
- High output. Robust global GDP growth and lack of global shale developments lead to the highest level of U.S. natural gas demand.
These scenarios represent a combination of various, and sometimes drastic, supply and demand discontinuities.
Despite past uncertainty, the long-term outlook for the country's power industry remains bright.
After nearly a decade of rapid growth marked by reform and investment, India's power sector has reached a new period of skepticism. Long-standing concerns about fuel availability, the financial health of state-owned distribution companies, and land and environmental issues have bubbled back up to the surface. Meanwhile, rising costs could threaten the viability of new projects. Nonetheless, the Indian power sector still holds much promise for its stakeholders. Despite a gloomy short-term picture, the medium to long-term outlook appears to be much more optimistic.
This paper examines four trends that will shape the evolution of the Indian power sector over the next decade—fundamentally changing the industry structure and redefining the balance of power—and discusses the three major moves industry players have to address these trends.Close
Growth is back and hitting record levels. What are leading companies doing to get the most out of their capital projects?
Before the onset of the economic downturn in 2008, a perfect storm of factors had pushed capital spending to new heights. At the same time, global markets were offering ample, readily available funding in global markets; competition for scarce resources spurred companies to act quickly.
The financial crisis of 2008 tightened capital markets and brought considerable uncertainty about long-term economic stability. For two years, capital investment activity dropped. In 2010, capital investments recovered and growth is expected for at least the next three years. Spurred by the push for new frontiers, companies are again investing heavily in capital projects. Capital spending is now $11 to $12 trillion annually, with growth of 10 percent or more expected in the next few years.
However, certain paradoxes are creating significant challenges for managers across the globe and posing major risks to project economics. According to A.T. Kearney's second Excellence in Capital Projects study—or ExCap II—capital project performance remains well below par, with three out of five over budget, and seven out of 10 behind schedule.
This paper examines the study findings, discusses the challenges managers face in capital projects, and highlights the leading practices across the capital expenditure life cycle.Close
- Supply Chain, 26 June 2012
In part two of a two-part feature article, the authors discuss the benefits of an agile value chain.
- Supply Chain, 25 June 2012
The first in a two-part feature, discussing the increase in market prices of rare earth elements and the effect on the global supply chain.
To keep up with change, refineries will have to restructure, strategically reposition their assets, or leave the market.
Over the next 10 years, operators at one in every three refineries in North America and Western Europe will need to reconsider their operating models and how they are integrated across the value chain. Otherwise, they will struggle to keep up with changing global markets and compete with improving global standards in refining. By 2021, refineries will need to restructure, strategically reposition their assets, or leave the market.
These stark prospects are among the findings of a recent A.T. Kearney study of the global refining market. In North America and Western Europe, the current trend of refinery closings is expected to continue, with one in five refining assets being squeezed out of the market over the next five years. Meanwhile, the boom in demand in Asia and the Middle East will lead to substantial changes in capacity and partnership structures.
Choosing the right operating model and the required level of integration across the value chain—for each asset and each region—will be crucial for improving margins and sustaining profitability in a volatile market. For assets that are not financially viable, regardless of their model, a decision about whether to exit will need to be made early on to prevent financial losses later in the decade.
This paper examines the changes taking place in refining, the value drivers shaping the future of refining, the models available to refiners for different assets and different regions, and the strategies for maximizing value in every region. We also provide details of A.T. Kearney's Refinery Health Checker, a tool for assessing whether an asset's operating model is ripe for change.Close
Materials availability is vital in the oil and gas industry to prevent delays—even at the risk of higher costs.
The landscape for upstream oil and gas companies is shifting at an unprecedented pace. The production of conventional sources of oil and gas is relocating to more remote, more difficult, and more expensive parts of the globe, such as ultra-deepwater, and to the Arctic. This inevitably leads to higher project costs and higher risk on capital returns.
Oil price volatility has also reached new highs. Crude oil went from $17 per barrel in 2001 to $105 in February 2012, with downward swings as sharp as five times, from $145 to $30 in 2008. And wholesale gas has had its own ups and downs. In the United Kingdom, for example, day-ahead gas prices were 15 pence per therm in July 2009, 77 pence per therm a year later, below 30 pence per therm a year after that, and trading around 60 pence per term in the beginning of 2012. On the continent, gas prices started decoupling from oil prices, creating uncertainty and negatively influencing both oil companies and their customers.
To preserve profitability in these challenging times, oil and gas companies must maintain operational efficiencies while minimizing risks. With this in mind, materials management is a hidden gold mine for many upstream companies—a wealth of value waiting to be discovered.
The boom in U.S. gas supply has touched off a dramatic expansion in production capacity in North America and exploration around the globe.
Natural gas markets have been in continual flux since deregulation, with increasing volatility for the past 10 years. In the early part of the 2000s, the U.S. natural gas supply was tightening in the face of growing demand. This supply-demand imbalance, created by clean energy pressure, drove price increases from the traditional $2 to $3 MMBTU (million metric British thermal units) floor to more than $13 MMBTU in 2006 at the Henry Hub, a central U.S. trading point for wholesale gas. Then came the widespread use of unconventional drilling and completion techniques, namely horizontal drilling coupled with multistage hydraulic fracturing, which opened up untapped expanses of shale formation across the East, the Midwest, and beyond. This boom in the U.S. gas supply has kicked off a dramatic expansion in production capacity in North America and exploratory efforts around the globe.
The resulting gas glut has been a boon for users, while drillers struggle to understand the developing end-game scenarios and economics. George Blitz, vice president of energy and climate change at Dow Chemical, said in recent testimony to the U.S. Senate Committee on Energy and Natural Resources, "When natural gas prices are low relative to oil, U.S. chemical manufacturers have a competitive advantage."Close
Europe, Middle East, and Africa