As the LNG export era dawns, the global energy dynamic is experiencing a tectonic shift that is unleashing abundant opportunities and risks.

“The growing surplus of resources in one part of the world and rising demand in the other has led to a major shift in the oil and gas industry,” Deloitte said in its “Oil and Gas Reality Check 2014.” “This changing supply-demand pattern will rearrange the order of fuels in the global energy mix in favor of natural gas.”

The North American energy revolution—and the shale boom in particular—plays a pivotal role.

“Some fear this growing feeling of independence will translate into greater isolationism and a reluctance to remain engaged in international affairs,” Deloitte said. “However, we believe that this scenario is unlikely as new sources of supply and greater competition for demand, particularly in Asia Pacific, reshape the global geopolitical landscape and create greater, not fewer, interdependencies among nations.”

Managing megaprojects

The study focuses on expansion and contraction on several fronts:

  • Dominance amongst suppliers;
  • Shift from regionalization to globalization in natural gas markets, coupled with the reverse in oil markets;
  • Growth in some fuels, decline in others;
  • Capital projects swelling to “mega” proportions; and
  • Opening and closing of borders as a result of geopolitical concerns and changes in supply and demand.

“Balancing the global supply and demand for both oil and gas amidst these trends will require a different approach to managing megaprojects in new frontiers,” Deloitte’s study said.

A megaproject refers to a project with reserves totaling more than 1 billion barrels of oil equivalent (Boe). Deloitte splits megaprojects into traditional (onshore, shallow water, heavy oil); unconventional (shale, tight oil, oil sands); and new-age (LNG, gas-to-liquids, deepwater, Arctic).

Traditional reserves showed limited growth prospects during the economic boom of the early 2000s, which led to a funneling of cash into new-age projects. However, “a series of delays and cost overruns deflated the industry’s enthusiasm for these efforts,” Deloitte said, pointing to Australia’s Gorgon LNG project—40% over original cost estimates—as an example, along with Qatar’s Pearl GTL project and the giant Kashagan project on the Caspian Sea that is estimated to cost $136 billion.

Deloitte believes this “tough phase” will pass, however, and that new-age projects “will continue to remain an integral part of the oil and gas industry’s growth strategy over the long-term as conventional fields decline and shale growth moderates.”

But the study warns that new-age projects require modern project management strategies to succeed. These include:

  • Enhanced upfront engineering and planning;
  • Agile project monitoring and evaluation methodology;
  • Increased integration and collaboration among project participants; and
  • A system of emerging technologies, tools and experiential knowledge to promote operational excellence.

Energy nationalism

Deloitte lists three major drivers driving the tug-of-war over resources:

  • Greed: The desire for wealth as resources are monetized;
  • Fear: The desire for energy security because modern societies are so dependent on energy; and
  • Pride: The desire to maintain sovereignty over natural resources for purposes of national development.

Macro-factors that shape energy nationalism and rebalance those drivers include: technology, which Deloitte refers to as the great equalizer, opens up new resources in shale and deep-water exploration, including floating LNG (FLNG) facilities like Shell’s Prelude, which will deploy in Australia; energy efficiency, which has slowed demand growth in developed countries and will someday do the same in emerging economies; and population growth and a rising middle class that pulls oil and gas toward large, growing economies in Asia.

“Overall, greed and fear are on the rise, and pride is on the wane,” Deloitte declares. Formerly fearful countries are becoming more confident as a result of their newfound resources, while those with energy deficits must diminish their pride to enhance their security.

“The U.S. opposes selling its resources outright, although that may change for coal, and continues to view export of its resources with some caution, hence the slow pace of LNG export approvals and sluggish momentum for crude oil exports,” Deloitte said. “Rather than outright ownership, more [national oil company] participation in foreign ventures is expected.”