By Rob Starr, Big4.com Content Manager
Like a lot of other financial research that has come out in these uncertain times, the current Deloitte CFO Insights report, Energy & water: A market reality, strikes both an optimistic and cautionary note simultaneously. The ability to unlock ample reserves of oil and natural gas through horizontal drilling and hydraulic fracturing have created what’s being called a renaissance in the U.S. energy sector, but the possibility of measured economic responses on the world stage also seems inevitable.
John McCue, Vice Chairman, US Energy & Resources Leader at Deloitte, took some time recently to help us sort through the numbers and the ebb and flow of their implications. McCue is responsible for coordinating all of Deloitte’s services for energy companies across
the United States. He started by telling us that most companies look to make investments over a predictable cash flow horizon of between five to ten years.
“What we’re trying to put forward is that if energy is either a contributing or major portion of your investment decisions, you can count on a fairly predictable range of prices within that window,” he says adding that looking at industrial consumption, there’s a tendency to lean toward natural gas that trades in regional markets and is less of a global commodity than oil.
The research emphasizes an awareness and subsequent focus on the importance of this fossil fuel to the extent that the U.S. surpassed both Saudi Arabia and Russia to become the largest global producer of oil and natural gas liquids in Q1 2014. Even so, McCue strikes a cautionary note even though natural gas prices are expected to stay flat over a reasonable investment horizon.
“Make no mistake, natural gas is becoming more of a global commodity as LNG makes its way around the world to close the gap between supplies and demands,” he says adding that some forecasts are actually placing energy demands 40 to 50 percent higher 50 years from now as increasing populations and a higher global standard of living take hold.
Rising Global Demand
“A lot of that will be consumed in electricity production and transportation,” McCue says, “so over the long term there will be a rising global demand for energy.”
He also stresses that America’s good fortune when it comes to oil and natural gas development translates into lower imports from foreign markets and price corrections that take into account the increased supply from North America.
“We’re seeing that in global crude markets today with a demand that remains slack in the rest of the world and a robust supply,” McCue says.