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KPMG survey finds majority of energy execs see oil over $121/barrel this year; shale expected to have transformative impact, investment in alternatives increasing

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.

Comments

SJC

Supply: "Comprises crude oil, condensates, NGLs, oil from non-conventional sources and other sources of supply."

This is from the IEA report listed above. They assess supply and demand for the world market based on past data.

I understand the point about NGL, but the link that was offered stated that was between 1-2 million barrels per day, not enough to trigger the "rule of thumb" 4%.

HarveyD

The OLD supply and demand bible or teaching does not apply any more.

Speculators and price fixers have learnt to do without it many years years ago.

The price of most (all) commodities is artificially set by master speculators who make enough profit to make us believe that the price volatility is for 1001 other reasons and that they (speculators) do not exist and have noting to do with it.

The underworld has moved in the major construction firms in our area and have managed to increase major construction cost by up to 300% in a rather short time. They take turn with who will be the lowest bidder. For example, for a $5M overpass, the pre-selected firm will bid $11M and all others will bid $12M to $15M. This way the bidding process is apparently respected and buyers are convinced that they did nothing wrong. They next similar contract will be 20% higher with another major firm being the lowest bidder, etc. Within one year, the cost of similar projects can double.

We are so gullible. Most would believe that the earth is flat if it was repeated often enough.

Price fixing goes a long way in many areas/endeavors. Yesterday, gasoline went up exactly $0.40/gallon at all gas pumps while crude price has gone down from $116 to $96/barrel. All distributors maintain that there is no price fixing. They claim that refining cost is up to $0.19/L this year instead of $0.07/L last year. Supply and demand DOES NOT apply and no apparent competition either. What a joke.

SJC

If speculation causes volatility then we need to know how much and for how long. After the 2008 price rise, they started paying attention to an oil price VIX, or volatility index.

http://www.cboe.com/micro/oilvix/introduction.aspx

We can talk about averages, but when the price of gasoline goes above $4 per gallon and stays there for 6 months, it does raise some concern.

JMartin

When the futures contracts expire, the product has to be delivered. At the end of the contract, the price is whatever the market will bear -- and that is pretty close to supply and demand, because you can only store so much of this stuff.
In 2007-08, there was so much money in the markets, and so much optimism, people would pay whatever was asked. Then we shut down. Increased worldwide demand (along with a declining dollar) will contintinue to drive up oil prices until we have alternatives, or quit consuming.
Forget trying to match production and use, or rules of thumb. If you are dying of thirst and don't have water, you will pay any price to get it. It makes no sense to point the finger, just get on with developming alternatives.

SJC

"Masters’ research reveals some amazing statistics. At the end of 2003, institutions had allocated $13 billion to commodity index trading strategies. By March 2008 that number had ballooned to $260 billion."

http://news.goldseek.com/Altavest/1212427800.php

Treehugger

Harvey

You should do a bit of research before posting your long non sense posts. Nothing has change in the speculations market or in the way futures works. We are at plateau production for crude oil since mid 2004 while demand is soaring in emerging market like crazy, then price goes up. Now you can fool yourself with your conspiracy theories if it makes you feel better, go for it but don't take your belief for reality.

SJC

you didn't show anything at all. You don't even use the right data to show what you want to prove. "all liquids" is not "crude oil"

SJC

Read the IEA report, you seem to like to dismiss as if YOU are a credible source. I still have not see that "rule of thumb" reference, without it you have no credibility at all.

HarveyD

Treehugger: You are the one who is dead wrong or completely brainwashed by speculators' and oil people propaganda. The world can and does produce all the fuel that it can burn. There are no fuel shortages. Production cannot be over consumption for extended periods because we do not have enough storage. When storage and ships are full, you have to stop the pumps. However, that will not reduce the price because it is set by speculators, with no bearing on supply and demand.

Treehugger

Harvey

Better read that than to be blind...you know nothing about energy. And I already noticed it before...you say one thing and the opposite in the same sentence. If we can't store oil then how can speculator control the price ? you totally miss the big picture which is : crude oil production has been flat since mid 2004 date aw which the price went from 25$ to more than 100$ by today. Usually when the price of a commodity goes up the production of the commodity responds and the price eases, but in this case production doesn't increase while the price quadruple. The reason is simple : producer can't produce more, we are at peak/plateau because the geology has decided.

SJC

Again the IEA report is for all liquid not for crude oil, asides IEA has been in denial of peak oil for years and now they are realizing that they fooled themselves, the IEA credibility has been seriously damaged, 5 years ago they were predicting oil production going to 130 millions barrels a day by 2030, now they say we have past peak...no comment

SJC

Your links are questionable, one is a personal site and the other does not even have the credibility of Wiki. Even if you do insist on clinging to some belief in those links, one says that the difference made by NGL is between 1-2 million barrels per day.

We are still waiting on the references for that rule of thumb at 4% statement. You put faith in someone posting opinion on some site and scoff at the IEA...really, you are losing what little credibility that you thought you once had.

Treehugger

SJC

The difference between crude production and all liquid is more than 10 millions barrels, so you just wrote one other idiocy

http://www.theoildrum.com/files/World%20Liquids%20Production%20through%20Jan%2011.png

unfortunately the ASPO not longer update their nice monthly letter with all these numbers.

this site focus specifically on crude oil, it is difficult to find Oil Crude data separated from All Liquids

http://www.crudeoilpeak.com/?page_id=51

as for price elasticity of oil do you own research, I am not here to educate delusional people

Treehugger

For those who think in conspiracy theories and oil manipulated prices...

http://www.troymedia.com/2011/05/15/there-is-no-conspiracy-around-high-gas-prices/

SJC

You are not here to educate anyone, you are not qualified.

HarveyD

Treehugger....where have you been hiding for the last 20+ years?

Haven't you heard of the 2007 financial crisis (and other bubbles) and how they were created?

What do you call the dream you live in?

Reel$$

Quite probably gentlemen the "dream" any of us live in is the result of collective consciousness agreeing on matter. Matter is rather low on the universe's energy spectrum.

And none of this oil price discussion matters one wit with the introduction of electricity from truly alternative sources - like thorium nuclear and Low Energy Nuclear Reaction. We can argue about oil prices for weeks - it will NOT effect the introduction of energy in great abundance and at incredibly low cost.

Live it. Or, live with it. The cat has left the bag.

Engineer-Poet

I can't believe the amount of uninformed nonsense in this thread (well, from HarveyD, but...)

Treehugger is right. SJC is wrong. "All liquids" does not include LNG, it includes "liquefied petroleum gases" (LPG, propane and butanes) and "natural gas plant liquids" (mostly propane through pentane). It also includes ethanol, and double-counts the liquid fuels which go into making it.

These are not the same as crude oil. These liquids have much less energy per barrel than crude. Lumping them all together is deceitful; you're getting significantly less energy out of the same "flow".

HarveyD

Stats are difficult to deny. For 10+ years, oil production and consumption have been rather flat with an average yearly increase of about 1%. However, price has varied wildly between about $35/barrel and $147/barrel. Of course, this huge variation is NOT due to supply and demand (they have to match closely because we can't store billions of barrels). Price variations were mostly due to Speculation at many levels, including the producers.

A very well respected financier was saying very recently that the Supply & Demand market place system (including the Stock Markets) may have outlasted their usefulness. Too many people have found too many ways to cheat it. It is counter productive and another better controlled/regulated system is overdue.

Jimmy Jam

e 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. China Outsourcing

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