Ernst & Young: Rising North American oil supply highlights infrastructure mismatches

By Rob Starr, Content Manager, Big4.com

Ernst & Young’s Global Oil & Gas Center supports over 9,000 oil and gas professionals with technical experience in providing assurance, tax, transaction and advisory services across the upstream, midstream, downstream and oilfield service sub-sectors. Recently, they are highlighting the fact that growing oil supplies from unconventional fields in the U.S. and Canada have created significant logistics constraints, bottlenecks and considerable investment needs. These infrastructure constraints and mismatches are clearly reflected in the price disconnects in the Midwestern region over the last 18 months.

The global supply/demand balance continues to be uneasy due to heightened tensions between Iran and the West as well as to economic weakness and uncertainty. The threat of a full-scale strike in July by Norwegian offshore workers could have quickly tightened the balance, but government intervention seems to have averted the production halt.

The big challenge for the U.S. and European refining industry continues to be what has been called the “zombie refineries.” Just when it appeared that some of the surplus capacity may be permanently shut down, improving margins for other refiners, the uneconomical plants live on.

Rig counts are generally holding-up across all geographies, with strongest growth in Africa and the Middle East. Cost pressures are slowing somewhat across all services, including labor and materials, increasing roughly at a general inflation rate of about 2-3%. Global upstream spending is still increasing, but growth is decelerating.