UK: Oil and Gas Reality Check 2011 - A Look at 10 of the Top Issues Facing the Oil Sector

FOREWORD

Welcome to the 2011 Oil & Gas Reality Check Report.

This is the second year Deloitte Touche Tohmatsu Limited's Global Energy & Resources group has published its oil and gas trends and issues analysis for the year ahead.

Bearish economic indicators released in the last few weeks notwithstanding, oil prices are pushing upward, testing the upper limits of the US$70-80 per barrel range. Serving as a simple yet global and unified measure of economic recovery, it is oil's price range and the strength and sustainability of the recovery that will impact the ways in which all forms of energy are produced and consumed.

Among the trends and issues explored, China continues to be a priority for many oil and gas executives as they continue to be impacted by that country's demand for fossil fuels. On the supply side, China's desire for additional sources of oil and natural gas are expected to continue in the short-term, leading to more mergers and acquisitions within the sector.

Despite the setbacks experienced as a result of the Deepwater Horizon spill, deepwater drilling shows no signs of abating any time soon. Although increased regulatory scrutiny will be the norm going forward, oil and gas companies are demonstrating the same zeal as before although they will need to further quantify the risks. This will include making the "safety case" to government regulators, which details the well-specific tasks and the assignment of risk management responsibilities to all parties.

The methodology for developing this report included in-depth interviews with clients, energy industry analysts and the most senior energy practitioners from Deloitte member firms around the world. I am most grateful to all of them who offered up their insights and expertise at a point when their time and attention was in high demand.

Adi Karev
Global Oil & Gas Leader
Deloitte Touche Tohmatsu Limited

1. DEEPWATER DRILLING PRESSES ON WITH SOME IMPORTANT CAVEATS

Despite significant progress in developing renewable and other alternative energy sources, oil and gas will continue to constitute the majority of the world's energy supply over the next 25 years.

The tragic Deepwater Horizon blowout accident and subsequent oil spill have given the industry pause, but only a temporary one. Despite significant progress in developing renewable and other alternative energy sources, oil and gas will continue to constitute the majority of the world's energy supply over the next 25 years. As many nations struggle to boost their domestic supplies of oil and gas, they are likely to give the go ahead for more deepwater exploration and production even in light of recent events. It is no wonder then that producers are still pursuing deepwater opportunities with zeal.

While deepwater drilling will go on, many industry observers believe there will be differences. The accident in the Gulf of Mexico has created a new paradigm regarding the price of risk. The liability associated with that spill, which will likely exceed US$35 billion, far surpasses previous industry assumptions regarding what a "worst case scenario" would cost. To put this amount in context, it is greater than the market value for more than 90 percent of the companies presently operating in the Gulf, suggesting that only a handful of major producers could withstand that kind of financial blow.

Accordingly, oil and gas producers around the globe are now re-examining their safety policies in an effort to ensure sustainable operations. This often involves identifying and quantifying environmental, health and safety (EH&S) risks according to the new cost paradigm as well as implementing effective methods for managing and controlling these risks. Also, it frequently entails establishing ultimate accountability and clear roles and responsibilities for implementing EH&S policies and procedures.

The issue of accountability is also cascading through the extended value chain. For instance, the Gulf spill and other recent mishaps are also forcing insurance companies to redefine risk and worst-case scenarios as well as who is ultimately held responsible – the rig operator, the owner, or those who work on blowout preventers.

In the wake of the Deepwater Horizon explosion, global energy premiums have increased up to 30 percent.¹ Furthermore, the issue of how much insurance coverage is enough is making its way into the boardrooms of oil and gas companies. Some analysts and underwriters believe that annual aggregate limits of US$10 billion to US$20 billion are now needed for offshore oil exploration and production companies. These amounts are many times higher than the available limits under individual liability policies. This suggests that a new model involving multiple insurers and reinsurers is now required. One possible structure includes a consortium of insurers and reinsurers, each providing uniform prices and conditions and a fixed capacity.² Another includes traditional insurance or reinsurance on a subscription basis, with flexible pricing, conditions and limits. Yet another proposes a pool with contributions reflecting market share.

The ultimate solution, however, may be none of the above: Another option being considered follows the model that the nuclear industry has used for many years – member-owned mutual insurance companies. The nuclear industry has pioneered this model, which offers the distinct advantage of shared information, thus allowing companies to learn from one another how to improve the ways in which they manage risks.

2. BUYERS WANTED: SHALE GAS GROWTH WILL DEMAND NEW MARKETS

The recent discoveries of unconventional gas in North America have been a game-changing event. It is game-changing not only in terms of additional supply but also in relation to the impact this abundance is having on prices of conventional natural gas and liquefied natural gas (LNG).

The big surprise in unconventional or shale gas has been in the United States. The U.S. Potential Gas Committee – a volunteer group composed of oil and gas developers, geologists and petroleum economists – periodically reassesses the nation's non-proved gas reserves. In its 2008 report (issued September 2009), the Committee raised its estimates of U.S. gas resources exponentially from 32.7 trillion cubic metres (TCM) up to 47.4 TCM, an increase of 45 percent. An even more robust estimate from the U.S. Energy Information Agency brings the U.S. total to 54.3 TCM gas remaining to be produced. This new information is having both positive and negative effects on current and future LNG infrastructure projects.

First, the positive: Unconventional gas production in North America has dramatically changed the energy picture in the U.S., which as a nation can be considered self-sufficient. In turn, this new abundance frees up supplies for export to other regions and countries, most notably Asia and China. One prediction is that Chinese gas demand will quadruple from 80 billion cubic metres (bcm) a year in 2009 to 320 bcm at the end of the current decade.³ This massive rise in Chinese consumption is an important criterion in petroleum industry forecasts, which increasingly predict that natural gas will be the fastest growing major fuel source over the next 20 years. In addition, there appears to be insufficient demand for gas in the U.S., which is causing the price forecast for natural gas to be in the US$5.00 to US$7.00 range for the foreseeable future.⁴ A low price for gas allows electric utilities to switch from coal to gas and to reduce their CO2 emissions. Further, current conditions are favorable for the U.S. to soon transition from a gas importer to a gas exporter while simultaneously joining the ranks of the world's major gas producers, eclipsing Russia in the process. The long-held view that the U.S. would depend on imported LNG to cover its shortfalls has been discarded.

Just as in the U.S., Canadian shale gas has emerged as a game-changing occurrence. Canada's image as a low-risk producer has enticed Asian players to enter the market in search of new supplies. This Asian shopping spree reflects a long-term, bullish view of gas prices and the desire by several major players, including India's Reliance Industries, China National Petroleum Corporation, Japan's Mitsui, and Korea Gas, to secure favorable positions in the new gas plays.⁵ These companies are benefitting by gaining access to new supplies and by acquiring the latest extraction techniques that can be used to exploit their own reserves.

Now, the negative impact of these new discoveries: While new supplies of any resource are usually a cause for celebration, new supplies of unconventional gas are causing project delays and in some cases, asset write-downs. One example is the timing of Alaskan and Arctic gas development. Some experts are predicting that the US$58 billion being spent on developing Alaskan North Slope and MacKenzie Delta gas may be pushed back at least 15 years from the projected 2015-2020 start-up date.⁶ Norwegian oil and gas producer Statoil recently wrote down the value of its U.S. LNG import facility in Cove Point, Maryland, because U.S. shale discoveries limited the need for liquefied natural gas.⁷ Another planned LNG import terminal in Goldboro, Nova Scotia, will not proceed, as low natural gas prices along with the emergence of shale gas in North America have undermined the project.⁸ The increase in gas supplies has therefore had a dampening effect on LNG infrastructure projects and will likely force more companies to reallocate their financial resources elsewhere.

3. THE RESURGING TIDE OF THE NORTH SEA

As the global thirst for oil continues to grow, exploration and production activity in the North Sea will likely play an important role for many years to come.

With a record 356 exploration licenses being granted in the most recent round of approvals and new discoveries, interest in investing in the aging-but-still-productive North Sea shows no signs of slowing down.⁹ This contrasts sharply with the sentiment only a year ago that the financial crisis had made it extremely difficult for energy companies to raise capital. With the clutch of recent discoveries, investors have renewed faith that opportunities still exist for companies willing to use new technology to squeeze more oil out of old finds or drill around the margins of previously-discovered fields.

The new discoveries include the Catcher field in Block 28/9 in the central North Sea with initial indications of 300 million barrels of oil; the Blakeney, located 150 kilometers east of Aberdeen with more modest initial indications of 60 to 100 million barrels; and the Cladhan field, northeast of the Shetland Islands which, according to industry sources, holds 100 to 200 million barrels. These new finds support the view that capital spending in the North Sea will be increasing and while large amounts of reserves have previously been recovered, there does not appear to be a sharp decline but rather a gradual one with some peaks within the curve.¹⁰ This new spending has been based on advances in data acquisition and interpretation. Moreover, subsea technology and processes also appear to be playing a pivotal role in extending the production life of the North Sea where fields that were once considered impossible are now becoming technologically and economically viable.

While the average size of offshore finds in the North Sea appears to be shrinking, the amount of time that can be spent on developing plans for smaller fields can be reduced. Many in the industry are leaning towards adopting a standardized, fast-track approach to bring small finds into production more quickly and cheaply. This contrasts with giant fields that often need customized development plans. Using standardized equipment across projects also allows for early spending adjustments: If the project does not fit the standardized concept, the money can be reallocated to alternative projects. Some analysts estimate that standardized solutions can provide cost reductions of up to 30 to 40 percent.¹¹

Another way of saving money is changing the operational practices of the support vessels. According to shipping operator Solstad Offshore, some measures such as anchoring more often, rather than dynamic positioning of a ship using thrusters, could save considerable amounts of fuel.¹² Other options include more use of drifting, not running more engines than needed and improving communications with customers so that ships arrive when they are needed, rather than travelling at faster speeds and arriving early. By using these cost-saving methods, ships could likely save 10 to 20 percent on fuel costs, not to mention help the environment.¹³ A typical large ship used in the offshore industry, using 5,000 metric tons (mt) per year of fuel, would typically have produced 15,000 mt of CO2 a year, 270 mt of nitrous oxide and 10 mt tons of sulfur oxide.¹⁴ Any reduction would be an economic and environmental plus.

As the global thirst for oil continues to grow, exploration and production activity in the North Sea will likely play an important role for many years to come.

4. ASIAN NOCS ARE FIERCELY DETERMINED TO ACQUIRE UPSTREAM ASSETS

Asian state-owned oil and gas companies remain strategically interested in energy supplies and committed to paying above-market prices.

If industry observers questioned the capability and determination of national oil companies to conduct aggressive corporate takeovers for upstream companies, they should look no further than Korea National Oil Company's (KNOC's) recent successful hostile bid for Dana Petroleum.¹⁵ The successful takeover for Dana is likely to fuel unease in the industrialized world, raising concerns that Asian countries and other developing nations are prepared to go to whatever lengths necessary to make foreign acquisitions to secure future oil and gas supplies. This includes backing these deals with government support and funding. KNOC's recent acquisition is thought by many analysts to be the first successful takeover launched by a NOC and its impact will be analyzed for years to come. The purchase of Dana by KNOC validates a trend toward outbound acquisitions by NOCs, first begun in the 1990s by Chinese companies, and now extended to other Asian enterprises.

Asian state-owned oil and gas companies remain strategically interested in energy supplies and committed to paying above-market prices. This, along with the fact that cash-strapped independent players continue to be vulnerable because financing is still hard to come by for growth projects, makes mergers and acquisition (M&A) deals much more appealing. Additionally, oil prices have remained fairly stable during 2010 following 18 months of extreme volatility – a condition that is helping buyers to make better price assumptions.

There are many reasons why Korean corporate activity in the international oil and gas marketplace will attract the most attention. First, with China's continuing thirst for oil and gas supplies, gaining access to new sources of hydrocarbons is increasingly important to Korea. In August 2010, KNOC announced that it could spend upwards of US$6 billion on acquisitions and projects over the next year to meet the government's target of doubling production to 300,000 barrels of oil per day by 2012.¹⁶ Second, Korean firms have become confident enough to install their own executive teams and structures when buying foreign assets rather than relying on foreign management expertise. Third, according to Goldman Sachs Asset Management Korea, Korean companies need to begin to diversify their investments.¹⁷

The country's financial assets are increasing rapidly, with estimates of cash pouring into the National Pension Fund of US$1.5 billion net inflows a month. This trend is likely to continue for the next 25-30 years.¹⁸

Many oil industry analysts believe that the factors above indicate a renewed appetite for deal-making activity in the coming months, led largely by national oil companies from China, Korea and India. The new focus is likely to be on developing a presence in West Africa, where the combination of light regulation, new oil and gas discoveries, and a number of small firms creates an environment conducive for deal-making.

5. GLOBAL OIL AND GAS COMPANIES STICK TO THEIR KNITTING BY LEAVING ALTERNATIVE ENERGY TO SPECIALIZED FIRMS

The future of fossil fuels continues to burn brightly despite widespread concern about climate change. The United Nations projects that world population will increase by two billion people by mid-century.¹⁹ Simultaneously, up to three billion people in developing nations will have bought cars and adopted middle-class consumption patterns by 2030.²⁰ This expansion suggests that more fossil fuels will be needed despite the rapid growth in alternative forms of energy such as wind and solar. It also implies that global oil and gas companies will not have to deviate from their core competencies in order to find compelling business opportunities.

This mindset is increasingly being reflected in the strategies of global oil and gas producers, which remain intensely focused on hydrocarbons. For instance, Saudi Aramco is growing its reserves and aiming to raise recovery rates from major oil fields to twice the global average as part of efforts to meet future energy demand.²¹ Neighboring Qatar is bolstering its natural gas production capacity and LNG infrastructure to meet rising demand from Asia and elsewhere.²² Other producers are focusing on unconventional sources of supply, such as shale gas and oil sands, which are also expected to play a critical role in meeting world energy demand. For instance, Suncor Energy expects production from Canada's oil sands to more than double in the next decade to nearly three million barrels a day.²³

Executives and policymakers do expect alternative energy sources to increase their market share over time. While many oil and gas producers agree with this concept, a perception is emerging that the pace of this growth will be much slower than originally thought. There is also a growing awareness among oil and gas producers that many of the manufacturing capabilities needed for renewable energy production are beyond their scope. Consequently, an increasing number are leaving alternative energy to specialize producers and instead focusing on what they do best: locating, producing and processing hydrocarbons as efficiently as possible. To this end, some are quite satisfied with being "a bridge to the new energy economy," especially since this bridge may be longer and sturdier than expected.

6. LIKE ATTRACTS LIKE AS LEADING COMPANIES SEEK OPERATIONAL EXCELLENCE FROM POTENTIAL PARTNERS

Whether or not the industry can meet future energy demand will depend heavily on the capacity of global oil and gas companies to form partnerships. While IOCs and NOCs have a long history of working together, the criteria against which they judge the suitability of one another is changing.

When dealing with IOCs, NOCs and host governments of oil- and gas-rich countries are expanding their list of priorities beyond technology and investment dollars to also emphasize risk management and operational excellence.²⁴ This shift comes partly in response to the new paradigm regarding the social, financial and environmental price of risk that has emerged in the wake of the Macondo oil blowout in the deepwater Gulf of Mexico. It is also rooted in a growing concern about environmental stewardship among host nations, including how foreign investors plan to handle water and land use issues as well as greenhouse gas emissions.²⁵

IOCs too are getting choosier about whom they work with. While host nations are ratcheting up the pressure on IOCs to develop innovative approaches for bringing resources to market, IOCs are increasingly acknowledging that it is not enough to develop leading-edge technology. In today's risk environment, a premium is being placed on the ability to integrate technological innovations into operations safely, effectively and in an environmentally responsible manner.²⁶ Accordingly, IOCs are increasingly looking for partners – whether NOCs, service providers, or other E&P companies – with a similar commitment to operational excellence. Having compatible principles, they are finding, is becoming more and more critical for successfully applying emerging technologies as well as for mitigating risks.

7. RUSSIA AND CHINA BENEFIT FROM NEIGHBORLY ENERGY EXCHANGE

After years of on-again off-again negotiations, two of the world's major energy players have entered a new era of energy cooperation in the oil and gas sector. Russia and China recently completed the first oil pipeline linking the two nations. It's a win-win for both as Russia needs new export outlets while China pays huge transit fees from Middle East producers.

Russia and China have completed the first oil pipeline linking the two nations – the Eastern Siberia-Pacific Ocean (ESPO) pipeline to the Chinese major refining city of Daqing.

A new focus on exporting more of its oil and gas to Asia makes perfect business sense for Russia: Asia has been one if not the fastest-growing regions over the last decade. This contrasts sharply with Russia's export prospects for the European Union (EU) where unconventional gas is a welcome source of new supply and many member states are building terminals to import liquefied natural gas (LNG) from anywhere in the world. For China, the new oil pipeline will help to diversify crude supply, guarantee oil safety and effectively help to control the oil price in China.

The completion of the Russia-China pipeline will also pave the way for joint refining programs between the two nations. Both countries have agreed to forge ahead with a US$5 billion refinery to boost downstream supplies for China. In the refinery town of Tianjin, foundations are being layed for a 260,000 barrels per day refinery to be completed in two years. The refinery is a joint venture between China National Petroleum Corporation and Russia's top oil producer, Rosneft.

This new era of energy cooperation is likely to pave the way for other Asian nations to participate in Asia's increase demand for oil and gas. Vietnam is one of Russia's key strategic partners in the Asia-Pacific region. Vietnam is one of only a few countries to participate in oil extraction on Russian territory. The RusVietPetro joint venture has already begun to develop oil deposits in the Nenets autonomous district. Gas exports to South Korea and Japan are also being discussed as high level negotiations continue.

The diversification of energy exports is a key trend in Russia with the share of oil and gas exports to the Asian countries likely to increase between 10 and 13 percent by 2015. In response, the Asian countries will continue to diversify their suppliers and promote cooperation so as to conclude long-term contracts on the supply of oil and gas under mutually acceptable prices.

8. LACK IN THE LAND OF PLENTY: THE MIDDLE EAST EXPERIENCES A SHORTAGE OF NATURAL GAS FOR DOMESTIC USE

Many Gulf States are facing a peculiar irony. While they sit on top of some of the world's most abundant natural gas reserves, they are struggling to obtain enough of this clean-burning resource to meet their growing electricity demand. Together, the member nations of the Gulf Cooperation Council (GCC) – Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE) – hold about 23 percent of global gas reserves, but with the exception of Qatar, they are facing increasing gas shortages.²⁷ Indeed, on any given day, one is likely to see inbound liquefied natural gas (LNG) tankers, mainly from Europe, pass outbound LNG vessels, headed mainly to Asia. What stands behind this unlikely trading scenario?

One factor is booming GDP growth. GCC economies are growing at a rate of about seven percent a year, which is spurring demand for both gas and electricity.²⁸ This demand spikes even higher in the summer months as both individuals and businesses seek respite from the intense desert heat. The next factor is the strain of subsidies. Many Gulf States sell natural gas as well as electricity to customers at highly subsidized rates. The United Arab Emirates offers a case in point. Production costs of deep and mildly sour gas projects in the Gulf are between $5-6/m Btu, but domestic sales prices in the UAE range from $0.75-$2.00m/Btu.²⁹

Kuwait also provides a poignant example of the consequence of subsidies. The government charges households only about $0.07 a kilowatt hour for electricity, a situation that is exacerbated by the fact that many households simply do not pay their bills and are rarely penalized for their inaction.³⁰

The effect of these subsidies on oil and gas producers and to GCC economies is troubling. In the short-term, low prices resulting from subsidies are encouraging producers both at home and in neighboring countries to export their gas to Asia where it can command more than twice the price that it can within the Gulf region. This situation is creating immediate shortages, the only viable solution to which is costly LNG imports from Europe. In the long-term, the consequences could be even more severe. The low-price environment is constraining upstream investment as producers increasingly find development of gas fields to be uneconomical. The reality is that today's lack of infrastructure investment is likely to have supply repercussions for years to come.

While these countries are well aware of the damaging effects of subsidies, much debate remains about whether or not they have the wherewithal to do something about them. After all, taking away a benefit that citizens have grown accustomed to could be a politically risky proposition.

9. READY ... SET ... DRILL: CHINA RACES TO EXPLOIT ITS OWN UNCONVENTIONAL GAS RESERVES

The new gas pricing strategy is designed to support China in meeting its growing gas demand not with imports, but with domestic supply.

Unconventional gas has dramatically transformed the energy landscape in the U.S. and Australia; now it's China's turn. The Chinese government is offering incentives to drillers and is optimistic that new upstream technology can be deployed in the very near future. These recent developments could have serious implications for liquefied natural gas (LNG) exporters who are anxiously targeting China and its need for energy. The very idea that China could someday become self-sufficient in upstream technology like unconventional gas and LNG threatens the long-held technological advantage now enjoyed by western oil and gas companies.

Despite rising energy demand, China has made little use of its own domestic gas reserves, which have been estimated by the BP Statistical Review of World Energy 2010 to be close to 87 trillion cubic feet at the end of 2009. This inertia is due to the low permeability of the country's coal and limited infrastructure for handling the gas. New technologies and refined operating practices, however, are poised to change this situation. For instance, Australia's growing coal-bed methane (CBM) sector has been able to reduce production costs, which has led to the development of reserves once considered uneconomical.

One of the opportunities for producing additional supplies of gas has come from the Chinese government. At the beginning of June, China announced that the price for gas at the wellhead would increase by 25 percent, thus lifting the price control that has discouraged investors – both domestic and foreign – from developing the country's reserves.³¹ During the summer of 2010, prices stood at US$169,000 cubic meters – roughly half the price in Europe. This price increase is likely to benefit domestic players such as Sinopec and PetroChina as well as foreign investors.

The new gas pricing strategy is designed to support China in meeting its growing gas demand not with imports, but with domestic supply. This is a new trend that bears watching. One of the government's objectives is for shale gas output to reach 30 billion cubic meters a year by 2020. Notably, China has joined the U.S.-sponsored Shale Gas Initiative, a forum for sharing techniques and technologies to develop shale-gas reserves around the world.³²

In the short term, an increase in CBM output is likely to emerge faster than shale gas, as companies deploy new techniques. One example is Surface to Inseam (SIS) technology, which involves using a combination of horizontal and vertical wells to decrease the pressure in the coal seams so that the gas can easily escape to the surface.

If China increases the amount of domestic gas being produced, which the government hopes will occur, it could affect the nation's imports of LNG. Already, China purchases 7.63 billion cubic meters per year of LNG from exporters in Australia, Indonesia and Malaysia, and it is constructing new import terminals along its east coast.³³ If new shale gas and CBM production comes online in the years ahead, many Chinese importers of LNG could instead begin negotiating contracts with domestic producers.

10. THE GREAT ASIAN MAGNET EXERTS ITS PULL ON LNG

While having a flatter rate of demand growth, traditional LNG buyers, Japan and South Korea, as well as up-and-comer India, still remain attractive targets for exports.

China's economic growth is forecast to slow in the coming years. But what is considered to be moderate regarding China is often considered to be extraordinary in relation to the rest of the world. Compare, for instance, China's projected 2010 GDP growth of 10.2 percent to no more than 2.3 percent in the U.S. and 1.5 percent in the EU27.³⁴ This growth, when combined with China's determination to diversify its fuel supplies and to create a low-emissions environment, bodes particularly well for the future of LNG markets.

Other Asian nations are also contributing to the demand for natural gas. While having a flatter rate of demand growth, traditional LNG buyers, Japan and South Korea, as well as up-and-comer India, still remain attractive targets for exports, whose demand for natural gas is being driven by many of the same motives as China. According to the International Energy Agency's reference case scenario, global primary gas demand is predicted to rise by 41 percent to 4.3 trillion cubic meters by 2030. More than 80 percent of this increase in gas demand is expected to come from buyers in Asia Pacific and China specifically as it continues its industrialization and urbanization programs. So which regions will step up to furnish the supply?

As the great Asian magnet pulls LNG eastward, North American producers may find themselves in a role that they could not have imagined even a decade ago – that of global exporters. Flush with a large domestic supply of unconventional natural gas, several producers in the U.S. and Canada have recently put construction plans on hold for regasification terminals and instead are looking to build more liquefaction plants. This would give some North American producers the ability to export their products beyond the over-saturated Atlantic Basin and into the increasingly hungry Asia Pacific region, thus further contributing to the ongoing globalization of natural gas markets.

Australia, in particular, will need to pay attention to this globalization effect. Enjoying close geographic proximity to China as well as a good reputation as a secure and dependable supplier, Australia is fast becoming a challenger to Qatar, and may soon surpass Indonesia and Malaysia as the world's leading exporter of LNG from 2010 and beyond. Yet, added market pressures from North American suppliers could intensify the challenges of developing Australia's burgeoning LNG industry. The contest for human capital – engineers, project managers and geologists – will be heightened and access to project finance and raw materials will be strained as Australia races to complete other LNG and large-scale infrastructure projects ahead of global competitors. Nevertheless, Australia is still expected to play an important, if not dominant, role in supplying China and Asia with the gas and resources they require to fuel their supercharged economic engines.

Footnotes

1. Julia Kollewe, "Insurance Costs Set to Soar After Gulf Oil Spill." The Guardian September 21, 2010 pg. 27

2. Regis Coccia and Sarah Veysey, "Reinsurers Eye Ways to Boost Oil Rig Capacity." Business Insurance September 20, 2010 pg. 1

3. Keith Orchison, "Shell Goes With the Flow – Future of LNG." The Australian April 24, 2010 pg. 13

4. Gary Park, "Gas Revolution No. 2: Canadian Shale." Pipeline & Gas Journal May 1, 2010 pg. 28

5. "Asia Targets Shale Play in the U.S., Canada." Petroleum Intelligence Weekly July 5, 2010

6. Ibid

7. "Statoil Cuts Value of U.S. LNG Asset Due to Shale Glut." Reuters News July 29, 2010

8. "Another Proposed Canadian LNG Import Terminal Shelved." The Daily Oil Bulletin August 26, 2010

9. "UK North Sea Licensing Round Sees Record Interest." Reuters News June 28, 2010

10. Ian Forsyth, "Plenty of Good News in the North Sea." The Press and Journal September 8, 2010 pg. 19

11. Alex Froley, "Belt- Tightening in the North Sea." International Gas Report September 13, 2010 pg. 5

12. Ibid

13. Ibid

14. Ibid

15. "KNOC Makes Successful Grab for the UK's Dana." Finance Asia October 15, 2010

16. Ibid

17. Ibid

18. Ibid

19. "World Energy Congress: Fossil Fuel Habit Can't Be Kicked Quickly," The Oil Daily, September 14, 2010

20. Ibid

21. "Saudis eye growth in reserves, pledge supply; Aim to raise field recovery rates to twice the global average," Platts Oilgram News, September 14, 2010

22 ."Natural Gas the future of energy: Qatar energy minister," The Press Trust of India Limited, November 1, 2010

23. "Fossils with a Bright Future," MARKET WEEK, September 2010

24. "Chevron Executive Says IOCs, NOCs Must Partner to Meet Demand," International Oil Daily, October 26, 2010

25. Ibid

26. "Technology, Strong Partnerships Key to Meeting Future Energy Demand Growth, Albers Says," Business Wire, June 7, 2010

27. "Middle East gas shortages grow," Petroleum Economist, July 29, 2010

28. Ibid

29. Ibid

30. Ibid

31. "China's Unconventional Production is Set to Skyrocket." Petroleum Economist September 1, 2010

32. Office of the Press Secretary, the White House. Fact Sheet: U.S.- China Shale Gas Resource Initiative November 9, 2009

33. China's Unconventional Production is Set to Skyrocket." Petroleum Economist September 1, 2010

34. Economist Intelligence Unit. China Country Report November 2010 pg. 7

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