Many executives likely have pondered how they would have done things differently if they could have foreseen the emergence of US shale gas developments and especially if they could have envisioned that scenario years before their competitors.
Bain & Co. Inc. consultants devised a broad model to help senior management teams compare multiple, plausible future supply and demand scenarios in what Bain calls a period of unprecedented uncertainty for the oil and gas industry.
Uncertainty stems from supply shocks of recent years in crude oil, natural gas, and natural gas liquids, much of which is attributed to spiraling US unconventional production, two Bain partners told reporters during a Sept. 19 briefing in Houston.
Jorge Leis, Bain's oil and gas practice in the Americas from the consulting firm's Houston office, and Mark Gottfredson, a partner in Bain's Dallas office, wrote a brief, "Beyond forecasting: Find your future in an uncertain energy model."
They believe some companies could have avoided spending billions of dollars on US LNG import terminals if they had foreseen the coming shale gas production. In addition, some companies might have acquired shale acreage before land values escalated while other companies might have reallocated capital.
"If you had seen it coming, would you have anticipated the global, competitive advantage of US domestic industries, from manufacturing to fertilizer to plastics to coal, and the resulting changes to international flow," Leis and Gottfredson ask.
Reading signposts
Acknowledging it's impossible to predict the future, they suggest companies can build capabilities to see farther into the future by developing scenarios. Leis and Gottfredson outline eight plausible scenarios and define leading indicators for tracking those scenarios if and when they materialize.
"Signposts can give foresight on supply and demand shocks," Leis and Gottfredson wrote. "For example, the volume of North American tight oil entering the market would be a signpost that helps companies make strategic decisions about investment and (fuel) substitution. Leading indicators such as capital expenditure in exploration, production, and midstream infrastructure all help shed light on whether that signpost is imminent."
Bain's oil and gas partners believe companies using this approach can sustain a competitive advantage.
"We can capture the dynamics shaping the energy ecosystem along three major vectors: the supply of natural gas, the supply of crude oil, and the penetration of renewables in the total energy mix," Leis and Gottfredson said.
Each scenario envisions significant differences in energy consumption. Collectively, the scenarios yield a wide range of production and prices for US oil and gas in 2030. Likely shares of fuel mix from coal and renewables also vary widely.
Leis and Gottfredson suggest US oil production could range 8-14 million b/d with prices in a range of $60-130/bbl based on 2012 dollars. Gas production could range from roughly 50-120 bcfd (depending on exports) with prices ranging $4-12/MMbtu.
Coal and renewables could be undercut by hydrocarbon prices stemming from high production volumes of shale gas and tight oil, and the US could stop importing oil and gas from outside North America, Bain suggests, although the model does not rule out growth in renewables.
"If renewables continue on their trajectory of cost reduction and experience a breakthrough in storage technology, we may shift to a scenario where a significant percentage of power generation and transportation comes from clean sources," they said. "If, on the other hand, shale gas and tight oil prove to be less available or harder to extract than anticipated, we could see a coal renaissance and mounting pressure to import stricter climate legislation in the US."
