Oversupply and Slowing Demand Signal Challenging Times Ahead for Energy Industry

Oliver Wyman Reveals Energy Predictions and Launches Second Energy Journal

London -- March 23, 2016 -- The energy industry will need to forge new strategies to overcome significant challenges ahead, according to a new report released today by Oliver Wyman. The international management consultancy firm offered predictions around the future of the energy industry as it launched its second annual Energy Journal, defining the latest thinking around macro-trends and micro-developments.

“Change has become the new constant in the energy industry, with continuing pressure from record low oil prices, an excess of supply and not enough global demand,” said Francois Austin, Head of Oliver Wyman’s Energy Practice. “Unprecedented shifts are forcing oil and gas companies, utilities, governments, investors, regulators and even consumers to rethink basic assumptions that have guided the energy sector for decades worldwide. To stay ahead of the profound transformation under way, business and government leaders must forge new strategies, operating models and risk mitigation tactics.”

The predications for 2016 are around oil prices, demand/supply and energy M&A trends:

• Oil Prices -- Several moving parts around oil prices, including demand, Iran and non-OPEC decline, create pricing volatility in 2016:  “Oil does not work at $50/bbl (barrel). The price needs to be at least $65/bbl or the industry is not going to see the investment required to offset impending decline,” noted Austin.

• Oil Demand -- Demand growth has certainly been stronger than anticipated, especially as oil prices are so low: “In 2016 we expect to see demand growth slow to 1.0mb/d (thousand barrels of oil per day), most notably in the second half of the year, as the commodity sees some improvement in pricing,” Austin said.

• Oil Supply -- The prospect of oil prices being below $40 a barrel until 2020 would raise the world's dependence on Middle Eastern oil because they would remain among the few nations to stay profitable. In addition, low prices would eliminate most U.S. shale oil production: “While some niche assets and conglomerate operations may be able to endure, many smaller mature assets are headed for decommissioning unless significant cost-saving technology emerges. Regulatory efforts to foster cooperation and cut costs have had limited success so far,” Austin noted.

• Energy M&A -- Deal-making in the oil and gas industry has been subdued as highly volatile oil prices have led potential buyers to sit on their hands: “Though low oil prices typically produce more M&A, potential buyers may decide to wait for greater stability that may better align buyers and sellers on asset valuations,” Austin concluded.

About the Oliver Wyman Energy Journal

The second edition of the annual Oliver Wyman Energy Journal is a collection of expert perspectives on the shifting energy landscape. Each article in the annual Energy Journal offers practical suggestions for how companies can thrive and grow their businesses. To view the Energy Journal, please click here.