KPMG survey: Energy execs expect oil price to exceed $140 in 2012

Many energy executives expect the price-per-barrel of Brent crude oil to peak this year at levels significantly higher than today's $112 /bbl. In fact, 43% predict oil prices will exceed $141 per barrel, according to the results of the 10th annual energy executive survey conducted by the KPMG Global Energy Institute. In addition, more than two-thirds of the survey respondents say US energy independence is not attainable until at least 2030, despite the increased focus on domestic energy sources, energy infrastructure, and alternative energy sources such as shale.

In this year's survey, KPMG polled 225 financial executives from global energy companies in late April 2012. Of those, 25% think 2012 Brent crude oil prices will peak between $131 and $140 per barrel. Almost half envision even higher prices, with 27% predicting a peak between $141 and $150; 9% predicting between $151 and $160; and 6% between $161 and $180. One-third think Brent crude prices peaked earlier this year when it hovered around the mid-$120 range, and are predicting between $121 and $130 per barrel as a high for 2012.

"Our survey findings confirm that we may not have seen peak levels on crude yet. Energy leaders tells us continued volatility will be driven by underlying issues such as economic uncertainty, geopolitical risk, rising operational costs and regulatory concerns," said John Kunasek, national leader of KPMG's US energy practice and executive director for the KPMG Global Energy Institute. "In fact, 40% of executives say the single most important energy issue facing the United States is the need for a sound and long-term energy policy."

This perceived lack of a national energy policy could drive executives' thoughts on the reality of US energy independence. When asked when they think the US can attain energy independence, 27% say never, 21% say 2040 or beyond, and 18% say by 2030. Interestingly, 12% deem it possible by 2020 while the remaining 22% think it possible by 2025.

The shale gale

The majority of respondents agree that the development of shale oil and gas reserves will have a significant effect on global energy needs over the next three years. In addition, nearly half (49%) believe shale, which accounted for only 20% of total natural gas production in 2010, will become the US's dominant source for natural gas by 2020, while 22% believe it will be the primary source for natural gas by 2025.

"Increased production of shale gas in North America could have profound implications on the global energy sector," said Regina Mayor, oil and gas sector leader for KPMG US. "Companies will continue to invest heavily in shale assets, as the industry has only just scratched the surface in the development and resulting production resulting from these assets."

In the survey, 78% of executives believe the industry's emphasis in developing environmentally friendly technologies should be focused on natural gas. As such, shale gas/oil (61%) was most frequently cited as the alternative energy source that will win the most significant R&D investment over the next three years – up from 44% who selected shale in KPMG's 2011 survey.

Global investment in renewable energy projects in 2011 exceeded investment in fossil fuel power projects for the first time. However, despite the bullish outlook for shale projects, only 19% of respondents expect R&D investment in alternative energy sources to increase this year – down from 35% who predicted an increase in last year's survey.

Additionally, 61% of executives believe renewable energy investment will begin to decline as governmental subsidy programs become harder to reconcile with budget shortfalls and as other, cheaper energy sources such as shale gas become more prevalent.

"This data does not mark the beginning of declining investment in renewables," said Kunasek. "It suggests that executives are fully aware of the ramifications of the upcoming US presidential election, and also the understanding that 2011 saw historic investment levels in assets that must now be developed and monetized. We will still see significant investment from the industry going forward, but perhaps at flat levels."

Executives also responded that their companies will increase capital spending in 2012 compared to 2011. In fact, 60% expect capital spending to rise. Capital spending decisions will be impacted by regulatory requirements and constraints, availability of capital/financing, and forecasted crude oil and natural gas prices. In addition, 69% anticipate operating costs will rise as well over the next 12 months.

A significant portion of the rise in capital spending may be allocated to human resources as 48% of executives expect to expand their workforce over the next 12 months.

For more information, visit www.kpmgglobalenergyinstitute.com.