Challenges in Oil & Gas Industry

As approval for new projects ground to halt, downstream companies also began experiencing the ill effects of global financial crisis. Natural decline rates in existing field average roughly 7 % globally, which reduces annual supply capacity by approximately six million barrels per day. Post- recession resumption in the massive growth rates in countries like China & India promises to quickly reverse the recent drop in global consumer demand. Cost of regulatory compliance remains set to rise, especially in United States, as it steps up plan to reduce greenhouse gas emission aggressively.

Retirement rates in oil & gas industry and talent crunch also are some other key challenges which need to be addressed. To address these challenges, oil & gas impasses cannot afford to be side-tracked by short term trends. They must take a Challenges in Oil & Gas

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!

order now

Although this model has worked to the industry benefit for years, the global financial crisis is now taking a toll on companies of all sizes. Tighter credit markets are impelling smaller operators o defer expansion or capital projects, limit development and even sell off assets. In the past few years, some companies have failed to raise enough capital through their PIP due to lower oil prices and lower demand due to economic slowdowns . Forty- three companies from the Commonwealth of Independent States (CICS) have postponed or pulled their flotation this year, said PAN, a consultancy with a focus on Russia and the CICS.

While limiting capital investment may placate shareholders in the short term, failure to replace resources can result in insufficient production to meet long term demand. Despite slower growth, the International Energy Agency still forecasts world primary energy demand increases by one-third from 2010 to 2035, with China & India accounting for 50% of the growth (World Energy Outlook 2012)2. The EIA is calling for an energy supply investment of $ 1 Trillion per year through 2030. The ensuing supply crunch may further raise the oil prices and threaten economic recovery.

In recognition to this dilemma, some countries have introduced fiscal incentives to prop up key industry players. Brazier’s national development bank, committed over US $10 Billion to state -controlled oil producer Patrons. This followed a similar investment by Mexico government in its oil producer, Pepper, to fund the construction of new refinery. Figure I- source – world Energy Report 2012 BABUSHKA KUMAR Roll -02 PAGE -B 2011- 13 page 3 4. 2 High operating Cost leading to Lesser Profits For oil and gas companies across the supply chain, high commodity prices in recent years translated into more than record profits.