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May 17, 2013

'Shale Gale' Whips Up Industry Optimism About Energy Independence



Today’s energy executives have a “fire in the belly” when it comes to the issue of fossil fuel reliance. In fact, nearly two-thirds think that America can attain energy independence by 2030—and of those optimists, nearly one-quarter believe it can be done by 2020—according to the findings of a survey just released by Houston-based consultants at the KPMG Global Energy Institute. What’s more, industry leaders are encouraged by developments in the shale sector—believing that it will lead to a resurgence in manufacturing and economic growth in the United States.

Eliminating U.S. dependency on foreign oil is an achievable goal, based on results of the 11th Annual Energy Industry Outlook Survey conducted by KPMG. Poll results indicate a 10 percent decrease in those who previously believed the U.S. would never attain energy independence.

KPMG's annual energy survey, which polled more than 100 senior executives in the U.S. representing global energy companies, found that 62 percent of respondents believe that the nation can achieve energy autonomy by 2030—up from 52 percent in last year's survey. Of the 62 percent, nearly one-quarter (23 percent) think energy self-sufficiency is possible as soon as 2020.

"Increased domestic production, particularly from shale assets, is having a profound impact on the global energy sector, introducing new sources to the energy matrix," said John Kunasek, national sector leader for Energy and Natural Resources for KPMG, adding, "This 'shale gale' is certainly contributing to the increased optimism among energy executives on the potential for U.S. energy independence and driving large investments into the development and production from these shale assets, including 'greenfield' investment plays [a form of foreign direct investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up]."

Natural Gas and Industry Growth

Given the potential of shale development, energy executives appear more confident about relative price stability. Most (73 percent) think that the price of natural gas will remain steady (from $3.01 to $4.00) for the remainder of the year. Similarly, 39 percent of respondents expect Brent crude oil— a major trading classification of sweet light crude oil—will peak at $116 to $125 per barrel in 2013.

"Greater assurance of supply appears to be stabilizing commodity price environments and enabling large investments. At the same time, marginal production remains 'shut in,' which could quickly be reinstated should the price picture become even more robust for gas," commented KPMG Oil and Gas Sector Leader Regina Mayor.

Seventy-nine percent of executives in the KPMG survey agree that the energy industry's emphasis on developing environmentally friendly technologies should focus on natural gas, followed by nuclear (39 percent), solar (33 percent), and clean coal technologies (32 percent)—indicating a slight shift away from the total bullishness around natural gas seen in the 2012 survey results, to a more balanced view with solar and wind technologies making gains.

Additionally, 62 percent of respondents said that natural gas will lead to resurgence in manufacturing and economic growth in the United States. When asked which region of the country would benefit the most, 36 percent chose the Northeast, followed by the Midwest (22 percent), Southwest (17 percent) and the South (16 percent).

"Natural gas production, particularly here in the United States, has drastically shifted the energy paradigm and will be key to the future of the energy industry as exports grow," Mayor said. "The high production rates of natural gas and its reputation as a low-cost alternative to other energy sources continue to contribute to the recent growth in manufacturing, and as companies begin to monetize these new assets we'll also see significant benefits for the local and national economies."

Growth opportunities and barriers

Nearly half (47 percent) of energy executives predicted that, due to an improving economy, their companies' revenues and U.S. headcounts (70 percent and 44 percent, respectively) would continue to steadily grow over the next year.

What’s more, respondents indicated that their companies would increase capital spending—most frequently citing the areas of geographic expansion (43 percent), facility expansion (28 percent), business acquisitions (24 percent) and information technology (23 percent).

Among those who were thinking about geographic expansion, the focus was on growth within the United States (26 percent); high-growth emerging markets outside America. (13 percent); and other developed markets outside the nation’s borders (5 percent). To achieve these aspirations, 25 percent said they would focus on operating process improvement enabled by technology for automation, and 14 percent cited a focus on organic growth opportunities with product development, pricing and geographic expansions.

Despite an overall optimistic outlook, survey respondents most frequently cited regulatory and legislative pressures (47 percent), pricing pressures (26 percent), volatile commodity and input prices (19 percent), and energy prices (19 percent) as the most significant growth barriers facing their companies over the next year. Sixty-four percent pointed to political and regulatory uncertainties as the biggest threats to their business models.

Investments in Alternative Energy

The 2013 KPMG survey also found that 95 percent of energy executives expect to make continued research and development (R&D) investments in alternative energy projects this year. Fifty-five percent anticipate investments will remain unchanged in 2013; however, the percentage of respondents predicting a 10 percent increase in R&D investment nearly tripled, from 11 percent in 2012 to 30 percent in 2013.

When asked which alternative energy sources companies will target most for investment over the next three years, executives most frequently cited shale gas and oil (54 percent), followed by solar energy (29 percent), wind energy (25 percent), biofuels (19 percent) and clean coal technologies (17 percent).

However, executives cited a number of significant challenges to increasing renewable generation on their systems, including the cost of competitive non-renewable energy (50 percent),  the cost of a new system (39 percent), and the complexity of renewable project financing and transmission (28 percent).

"What is exciting about these findings it that it demonstrates the industry's intent to explore all options, despite barriers regarding cost and complexities, to provide a diverse energy matrix to meet the world's future energy needs," Kunasek added.




Edited by Jamie Epstein

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