Reflections and Insights from CERAWeek 2014: What's Ahead for Energy?

Senior Vice President IHS Energy Insight Atul Arya chaired the Friday morning session "Reflections and Insights from CERAWeek 2014: What's Ahead for Energy?" Joining him were IHS experts in oil markets, the upstream industry, natural gas, power, the environment, and economics. Dr. Arya asked the panelists to discuss their perspectives on three points from this year's conference: the key messages, the biggest surprises, and the road ahead for energy.

For Jim Burkhard, Vice President, Head of Global Oil Market Research and Energy Scenarios, one key message was that geopolitical problems are more challenging today; there is a mismatch between key countries' capabilities and the types of problems arising in recent years, such as internal breakdowns in Libya. He also cited the increasing focus on costs, with concerns about margins being squeezed and projects being delayed. Looking ahead, Mr. Burkhard said that he anticipates increasing interfuel rivalry in the power and transportation sectors.

Jerry Kepes, Managing Director, echoed the concern about rising costs. Driving these concerns, he said, are the large technical challenges and high costs of resources that companies are developing. He also indicated that it will be difficult for large international oil companies (IOCs) to make money in shale plays because of the higher cost structure of these resources. He noted, though, that IOCs may be the only companies that can wait out the long time frame anticipated for scaling up shale plays outside North America. As for the road ahead, Mr. Kepes highlighted the opening of the Mexico energy sector.

Michael Stoppard, Chief Strategist, Global Gas, said that "all roads lead to gas," thanks to the "shale gale." At last year's conference, discussion focused on monetizing cheap North American gas; but this year, with higher gas prices, supply and demand are not aligned. Concerning liquefied natural gas, he noted that the conversation has shifted from "whether or not" to "how and when." In response to a question about the calm-state of gas markets in spite of the troubles in the Ukraine, Mr. Stoppard cited the buffer of high storage levels and the ability to reroute gas deliveries to Europe around the Ukraine.

The key message according to Lawrence Makovich, Chief Power Strategist, was that there is a new sense of urgency about coordination between gas supply and power demand. He also described how difficult it is to implement policies for that coordination when there is no growth in power demand in the United States. However, demand growth in the emerging markets is expected to be huge, he said, and technical innovations in distributed generation will be required to meet those expected demand levels. The biggest surprise, said Dr. Makovich, was the continuing lack of recognition of the high cost of carbon dioxide (CO2) abatement. For the future, Dr. Makovich said we may see more year-on-year fluctuations in CO2 emissions in the United States owing to the small price differences between gas and coal, which leads to more frequent switching to take advantage of those differences. He also reminded the audience that coal is still dominant in many developing countries.

For Samantha Gross, Director, Integrated Research, the key message was that true dialogue on the environment has moved to the forefront. She framed her comments around the need for companies to communicate, be transparent, and develop trust with stakeholders and the public. There is also less argument over whether problems exist and more constructive talk about operational implementation of solutions, she said. She also noted that companies have moved away from treating environmental solutions as a competitive advantage to sharing solutions and best practices to maintain their social license to operate. For the road ahead, Ms. Gross described the need for both technological and policy innovation, with water use and disposal at the forefront.

John Larson, Vice President and Global Leader for Big Data Analytics, described a new global competitiveness, with cheap energy being a strong contributor to GDP growth. The biggest surprise, Mr. Larson said, was the wide energy knowledge gap between those in the business and the general public. As for what lies ahead, he described the risks and opportunities around transport infrastructure, the gas supply/demand balance, and the US labor shortage and mismatch of skills. He also noted that although some countries are seeking to change their energy policies to replicate the US experience, these reforms are typically slow to materialize.

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.