PIRA Energy Group Releases Annual Scenario Planning Guidebook, Forecasting Long-Term Oil/Gas Markets

This comprehensive study assesses the outlook to 2030 for oil and gas markets.

New York, NY-- February 25, 2013 – In the most uncertain economic environment in decades, PIRA Energy Group, an international energy consulting firm based in New York, released its Annual Scenario Planning Guidebook, one of the key deliverables of its Scenario Planning Service.

This comprehensive study assesses the outlook to 2030 for oil and gas markets. It provides not only the quantitative forecasts — for PIRA's Reference Case and alternative high and low cases — but also the detailed assumptions that go behind the forecasts. These include views on the global economy, energy and environmental policy, technology, and producer strategies. Key "signposts" — developments that have the potential to fundamentally impact energy markets — are defined in the Guidebook. These signposts are subsequently monitored throughout the year by PIRA, to determine whether prices are tracking PIRA's Reference Case outlook or deviating towards a scenario case.

According to the Guidebook, the reality and potential of expanded production from both shale gas and shale liquids continue to have a dramatic impact on the regional and global balances for both commodities. While the production to date has been almost entirely in North America, those volumes have already been sufficient to alter global markets via changes in North American trade patterns.

Development of shale resources outside of North America is still in its early stages, but it is likely to expand rapidly before this decade is over. The impacts will go far beyond the crude and gas balances, with significant implications for relative pricing, refining, trade, energy policy, inter-fuel competition, and even the macroeconomic outlook. In regards to the flat price, developments in shale over the past 12 months, coupled with continued weakness and uncertainties in the global economy, have caused PIRA to lower its longer-term price outlook for both liquids and gas.

However, PIRA notes, the upside price risks, particularly in the oil market, have not disappeared. "No one knows how the Arab Spring will play out or how long the transition will take, but it has been chaotic to date, and the risks that the chaos will spread or lead to extended periods of ungovernable, or failed, states are very real," says Dr. Mark Schwartz, PIRA's President and director of the Scenario Planning Service. "We know that the record has been one of growing supply losses in the MENA region, and, with uncertainties over Iran still facing the market, it is perhaps not surprising that global crude prices have held flat despite the rapid and anticipated growth in shale. So, while it is easy to remain optimistic on global supply due to the success of shale liquids, it is important to note that, up to now, every barrel of incremental North American shale liquids production has been more than offset by losses of production due to political disruption."

With U.S. coastal crude prices still connected to the global market, but gas prices disconnected, the gap between gas and liquids remains extremely wide in North America. PIRA anticipates that the market will find a way to utilize discounted natural gas in higher value applications. LNG exports from North America to oil-linked markets will rise later this decade, slowly eroding the arbitrage opportunity as U.S. gas prices are pulled up and global gas prices are pushed down. Gas use in transportation is getting increased attention around the world from the U.S. to the Middle East to China and may move forward in meaningful volumes post-2020, even with only minimal government support, according to the Guidebook.

PIRA still projects strong growth in the use of gas in electric power generation, but it notes that Europe has disappeared from the list of growth markets due to the combination of incentives for renewables, weak top-line electricity growth, high gas prices, and low carbon prices. Europe appears to have a unique combination of these characteristics, but the potential of renewables, with strong government support of production and use, may have a greater upside than many anticipated.

For questions on the Annual Scenario Planning Guidebook, or for more information on PIRA's Scenario Planning Service, please contact:

Jeff Steele
PIRA Energy Group
3 Park Avenue, 26th Floor
New York, NY 10016

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