KPMG survey finds majority of energy execs see oil over $121/barrel this year; shale expected to have transformative impact, investment in alternatives increasing
12 May 2011
Energy executives expect continued volatility in the price-per-barrel of oil for the remainder of the year, with 64% predicting crude prices to exceed $121 per barrel. The executives also foresee shale oil and gas having a transformative effect on helping to meet the world’s energy needs, according to the results of the 9th Annual Energy Survey conducted by the KPMG Global Energy Institute.
In this year’s KPMG energy survey, which polled 550 financial executives from global energy companies in April 2011, 32% think 2011 US crude oil prices will peak between $121 and $130 per barrel. One-third of executives see even higher prices, with 17% of those predicting between $131 and $140 per barrel; 9% between $141 and $150; and 6% expecting crude prices to exceed $151 per barrel before year end.
Only 35% think current crude prices are near the high they expect for oil this year, predicting the peak will be between $111 and $120 per barrel.
While we have seen some very recent declines due to selloffs, these variations reflect persistent instability, and our survey findings confirm that we may have not seen peak levels on crude. Energy leaders tell us continued volatility will be driven by underlying issues such as regulation, geopolitical concerns and supply disruptions, as well as escalating energy demand. But the good news is that energy executives tell us they are significantly increasing investment in a range of alternative energy sources and see shale factoring strongly into meeting the world’s future energy needs.—John Kunasek, national leader of the KPMG US energy practice, and executive director for the KPMG Global Energy Institute
35% of the executives surveyed said their company would increase R&D investment in alternative energy projects in 2011, up considerably from 15% in KPMG’s 2010 survey.
Alternative energy sources. Shale gas/oil was most frequently cited (44%) by executives as the alternative energy source that will win the most significant investment, with nearly two-thirds (62%) expecting shale oil and/or gas to continue to have a transformative impact on meeting the world’s energy needs.
Executives also cited solar (31%), wind (25%), advanced, cleaner coal technologies (17%), biodiesel (10%), and chemically stored electricity (batteries and fuel cells) (8%) as alternative energy sources that would see increased R&D investment.
What is exciting about these findings is that it demonstrates the industry's intent to explore all options. Previously, the executives have pointed to wind and solar as the main investment choices, but this year we have seen a shift. Increased production of shale gas in North America could have profound implications on the global energy sector. Even batteries and fuel cells have entered the conversation.—John Kunasek
Higher capital spending. In addition to investment in alternative energy, executives surveyed by KPMG say their companies will increase investment in their businesses, predicting capital spending to increase in 2011 compared to 2010. 33% of executives expect capital spending to rise by more than 10% over last year’s levels; 17% project an increase between 5–10%; and an additional 17% forecast an increase of up to 5%. 69% anticipate operating costs will go up over the next 12 months as well.
A significant portion of the additional capital spending could be allocated to increasing human resources, as many of the executives (49%) expect their company’s workforce to expand over the next 12 months: up two percentage points from KPMG’s 2010 survey. One-quarter expect the workforce to increase up to 5%; 13% see increases between 5–10%; and 11% think their company will expand the workforce by more than 10%.
Offshore exploration and production. Despite the amount of attention the measures received, 68% of executives surveyed by KPMG say the regulatory restrictions resulting from the Gulf of Mexico incident have had no impact on their companies’ offshore exploration and production efforts. However, 12% said their companies have increased emphasis on nontraditional explorations such as shale, and 10% have increased onshore drilling.
8% say they have shut down US rigs and moved to other geographies; and another 8% say regulatory restrictions will have little impact on long-term development of offshore reserves but have improved exacting drilling practices.
KPMG will host its Annual Global Energy Conference on 25–26 May at the Intercontinental Hotel in Houston.
The history of oil prices is interesting to note. During the Depression, the price of oil went below $1 per barrel. After WWII and through the 60s, oil companies tried to keep the price of oil above $3 per barrel. In the 70s it went to $14 per barrel and stayed there pretty much until 2000.
Then two oil guys got into the White House and the price of oil quadrupled in 4 years then went over $140 per barrel in 2008. This was not an accident. Times are good in Texas when the oil boys in Houston are happy with higher oil prices. The best thing to happen to Exxon was OPEC.
Posted by: SJC | 12 May 2011 at 10:16 AM
Posted by: ai_vin | 12 May 2011 at 10:41 AM
Not only will the Texas oil men be happy but also members of the Spinach Party.
Posted by: Mannstein | 12 May 2011 at 11:13 AM
then why is the oil higher during obama than 2000-2004
must be that oil baron obama getting rich
2011 Average $86.84
2010 Average $71.21
2004 Average $37.41
Posted by: ds | 12 May 2011 at 11:15 AM
It is mostly oil speculation. All those tax breaks for the rich found their way into hedge funds. They were done flipping houses so they turned to commodities.
Posted by: SJC | 12 May 2011 at 11:31 AM
If oil goes to $121+/barrel, it may be the right time to buy more oil stocks. Many people see $200/barrel over the horizon. Of course, speculators have to create ups and downs (like we had in the last 2 weeks) to rack in quick profits.
The old supply and demand rule does not apply any more.
Speculators, in many places, create bubbles to attract small investors and then pull the plug to crash the stocks. They had time to sell at the peak but small investors didn't and lost $$B. That's how money changes hand very quickly.
Posted by: HarveyD | 12 May 2011 at 11:46 AM
the oil barons in the middle east have greater say on the price than the texas guys do
Posted by: ds | 12 May 2011 at 12:15 PM
Our speculators can move oil price without ever seeing a drop of oil.
They do the same with most commodities.
Posted by: HarveyD | 12 May 2011 at 12:48 PM
I have read that the oil coming from the middle east to the U.S. changes hands 8 times on the ocean voyage. These are not people that produce oil nor refine it, they are just betting. Buy low and sell high, make sure never to do anything productive.
Posted by: SJC | 12 May 2011 at 12:56 PM
This naive to think that speculators are responsible for the increase of price of oil these 6 past years. I there are responsible of the high price of oil, what were they doing when the oil price was at 20$ between 1986 and 2004 ?
Oil price increase because demand is increasing notably because of China development, and because the supply can't keep up because we are close to peak oil or peak plateau, period.
Oil is not the only commodity that rose these past 10 years, all commodities increased with the Chinese demand going up. We have to get ready for a world where commodities will be more expensive, our planet is not expansible, trying to give a european life style to 7 or 10 billions people will will put pressure on resources, and there is not much we can do about it asides of using them wisely and accepting the higher price of it.
Posted by: Treehugger | 12 May 2011 at 02:52 PM
House flipping by the hedge fund REITs was done in 2007, then they went on to bid up commodities. THIS is what caused the $147 per barrel oil in July 2008.
Anyone that thinks the run up in price from $70 to $140 per barrel was caused by supply and demand is delusional.
Posted by: SJC | 12 May 2011 at 02:59 PM
you miss the point that if the speculators can do that it is because there is a scarcity of supply with respect to the demand. It there is customers ready to buy at 140$ it is probably because they have no other choice. And as long as there is buyer, the price is right, even if it is well above the production cost.
I am afraid your are disillusioning yourself. A rule of thumb in commodity market is that if the supply fall short of the demand by 4% then the price of the commodity double. And this is not new at all.
Now demand can be driven up by fear of scarcity rather than real scarcity itself, and yes the speculator play with it. But after 7 years of regular increase in the price, let face the reality. IEA sent a warning 2 weeks ago we have past peak oil, blaming the speculators will not help
Posted by: Treehugger | 12 May 2011 at 03:52 PM
In the last 10 years (2000-2009 incl.) global crude oil consumption moved from 76.4 Mb/dy to only 84.0 Mb/dy or an increase of only 10% or slightly less than 1% per year. There are no real panic or shortage.
However, price (for no acceptable reasons) varied between $45/barrel and $147/barrel.
Price changes were NOT due to supply and demand.
Supply was more than sufficient and demand was very stable.
Price volatility was and still is mainly due to increasing speculators' activities. Major producers and distributors also found their huge increasing profits with price volatility. The only losers are people at the pumps.
We have been had at the rate of $$$B/year by:
1. Unscrupulous Speculators
2. Producers trying to get the highest price possible
3. Distillers/Distributors making $$B.
The only way we have to deal with this highway robbery is to reduce our consumption by buying smaller more efficient improved ICE, HEVs, PHEVs and BEVs, preferably the last two.
Posted by: HarveyD | 12 May 2011 at 04:51 PM
In 2007 there was a world demand matching the world supply at $70 per barrel. In 2008 supply met demand, but oil went up to $147 per barrel. The demand did NOT exceed supply.
Posted by: SJC | 12 May 2011 at 05:35 PM
"A rule of thumb in commodity market is that if the supply fall short of the demand by 4% then the price of the commodity double. And this is not new at all."
Show me that rule and that thumb, this should be interesting.
Posted by: SJC | 12 May 2011 at 05:38 PM
Harvey you are dead wrong on this,
Crude production has been flat from 2004 to now, when the demand grows by 1.5% yearly. What you are looking at is the all liquid production in which they add the NGL. All the growth in the all liquid production is due to NGL, the crude oil production has been flat these 7 past years.
The price has gone up because the production has failed to respond to demand these 7 past years, not because of the speculators.
SJC do a bit of research if you are not convinced
Posted by: Treehugger | 12 May 2011 at 06:30 PM
OPEC has a habit of reducing supply to drive prices up, that is an artificial manipulation. It is not like they can not produce more, they choose not to
so that they can maximize profits.
I am still waiting for links on your rules and thumbs. You made the statement.
For each time period below, the figure on the left is demand, and the figure on the right is supply, in millions of barrels per day.
2004: 82.5, 83.4
2005: 83.9, 84.6
1Q06: 85.6, 85.4
2Q06: 83.6, 85.1
3Q06: 84.6, 85.7
4Q06: 85.6, 85.4
2006: 84.9, 85.4
1Q07: 86.1, 85.6
2Q07: 85.1, 85.2
3Q07: 85.6, 85.2
4Q07: 87.1, 86. 5
2007: 86.0, 85.6
1Q08: 87.3, 87.3
Supply went from 83.4 in 2004 to 87.3 in 2008.
That is a 4.7 percent increase in supply over 4 years.
Posted by: SJC | 12 May 2011 at 07:28 PM
SJC you are wrong and misinformed
Your numbers are not relevant since they for the "All liquids that include the Liquified Natural Gaz" please look at the crude oil production which is what matter for what you put in the tank of your car.
we are at plateau around 73M barrels/ day since mid 2004 and that has nothing to do with OPEC manipulating the production or the price.
On top of this gas price is subsidies in many countries, basically all oil producers country and China. Consequently the gaz price doesn't follow the crude oil price productions in this countries which distort the market which increases the volatility of the oil price on the free market.
A country like Iran today produce 4 millions barrels/day but only export 3 millions because their own consumption has soared.
even IEA recognize that we are at peak oil, so free to you to believe these conspiracies theories, it is so confortable after all.
Posted by: Treehugger | 12 May 2011 at 08:40 PM
"Instead of focusing on the traditional fundamentals of supply and demand, Masters revealed what he calls “Index Fund Speculation” as having been partially responsible for the rapid price appreciation of crude oil and other commodities."
Posted by: SJC | 12 May 2011 at 09:10 PM
irrelevant, there is no speculators that can go against the supply/demand equation at least not for long.
Speculators only account for the volatility of the price not for the average price. But you are free to believe others sirens...
Posted by: Treehugger | 12 May 2011 at 09:20 PM
Global Oil Demand (2006-2008)
1Q06 2Q06 3Q06 4Q06 2006 1Q07 2Q07 3Q07 4Q07 2007 1Q08 2Q08 3Q08 4Q08
85.6 83.6 84.6 85.6 84.9 86.1 85.1 85.6 87.1 86.0 87.3 86.3 86.9 88.4 87.2
85.4 85.1 85.7 85.4 85.4 85.6 85.2 85.2 86.5 85.6 87.3
As you can see demand and supply tracked well. This is from the IEA report.
Posted by: SJC | 12 May 2011 at 09:39 PM
what they call oil is in fact "all liquids" that includes Natural Liquified Gas. What matters is crude oil, but I am repeating myself... the speculators know the difference between "Crude oil" and "all liquids" to bad you don't want to understand
but look here maybe you'll understand, anyway I give up
Posted by: Treehugger | 12 May 2011 at 10:40 PM
Good grief! Of course supply and demand will track over time. It is the price that takes the strain.
So they might 'track' at $20/barrel in oversupply situations, or $150/barrel where supplies are short.
How anyone can imagine that we can continue to add enormous numbers of new vehicles throughout most of the world, with 13 million this year in China alone, without either oil prices continuing to rise or a massive depression which greatly reduces demand due to shortages of the same oil is beyond me.
In either case supply and demand will 'track', but the consequences will be very different, and neither has anything fundamental to speculation, but is due to hugely increased demand and supply which cannot possibly rise commensurately.
Posted by: Davemart | 13 May 2011 at 12:44 AM
The assertion was that demand was 4% higher than supply and that is why prices doubled, remember the rule of thumb? I showed that demand did not exceed supply, so why the price spike?
Posted by: SJC | 13 May 2011 at 12:50 AM
I cannot see how you are making sense. Demand is aspirational 'I want to visit my folks this weekend' but without the supply, then aspiration may end up in the rubbish bin. 'At £1.2 a litre, I cannot afford to visit my folks this weekend' or 'I will go by train'.
One cannot physically meet a demand that exceeds a supply so the jumping oil prices resulted in suppress demand. How have you shown this suppressed demand without reading peoples minds?
One estimate would be to look at year-on-year usage figures in countries with relatively stable demand. A drop, would indicate suppressed demand with users avoiding journeys or using alternatives.
Posted by: Thomas Lankester | 13 May 2011 at 04:27 AM