E&Y reports risks, opportunities in oil, gas sector

The oil and gas sector is still an industry with relatively high and predictable returns, even though international crude prices will flatten in the coming decade and then decline, said an expert.

Andy Brogan, Ernst & Young global oil and gas leader, said on Monday in Beijing that despite China's relative economic slowdown, energy demand will rise rapidly with the continued growth of emerging economies, which will offer immense opportunities for oil and gas companies.

Ernst & Young released its latest report on the sector on Monday, covering the top 10 risks and opportunities in 2013 and beyond.

The company said the world is looking to new markets for expansion opportunities.

Fossil fuel demand will grow considerably in absolute terms in emerging markets even as renewable energy expands as a proportion of the world's total energy mix, said the report.

Natural gas is likely to grow in importance over the next few years, with Asia and Africa experiencing major increases in demand.

The rise of the middle class and increasing urbanization will drive a dramatic increase in energy demand.

Therefore, the level of demand for energy-related infrastructure will continue to grow, and oil and gas companies should be thoroughly prepared for negotiations with host governments.

"It could be harder to get permission to explore in other countries in the future," said Brogan.

Uncertain energy policy remains among the top five risks for explorers in 2013, and the consultancy said it is likely to remain in the top five until 2015.

All oil and gas companies around the world are seeking policy stability, but Dale Nijoka from Ernest & Young said governments will always be looking at how they can take more from oil and gas companies.

"How successful you can be in getting the resources depends on how you invest and the size of the deal," said Brogan. "Some nations are more sensitive about energy exploration by foreign companies and some are not."

He suggested that it is better for Chinese oil and gas companies to develop both the domestic and overseas markets instead of focusing on either one.

With increasing global energy demand and declining production from many mature oil and gas fields, the technology to develop new types of reserves is becoming more important.

The report said there are three key opportunities: the Arctic, ultra deepwater, and shale oil and gas.

"The technology will bring new reserves," said Brogan.

Fast-growing tight oil production in the United States is helping to reshape the global oil production outlook, the report said.

The US is predicted to be the main contributor to a forecast increase in oil supply outside the Organization of the Petroleum Exporting Countries in the next 10 years.