New sectors are likely to drive growth in the oil and gas market during this decade

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8 February 2011, Oil, Gas

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The oil and gas industry witnessed some phenomenal changes during the first decade of the 21st century. The noteworthy developments included the rise of crude prices to their historic highest level, the emergence of natural gas as a reliable fuel, serious interest being shown in unconventional fuels, and major expansion moves by a number of state-owned energy companies. The industry's growth declined towards the end of the decade, mainly because of the global recession. However, after a lull for a couple of years, the oil and gas industry witnessed a recovery during 2010 in terms of new deals and investments.

The coming years will see national oil companies (NOCs) posing a greater challenge to the established big players in the industry. In the short to medium term, NOCs are likely to act as the catalyst driving capital investments in the oil and gas sector. Moreover, in a bid to ensure energy security, countries such as China, India, Brazil, and Korea are aggressively backing their NOCs due to their desire to expand their global presence through mergers and acquisitions. NOCs are likely to employ inorganic growth as a key strategy for enhancing their global presence, and new investment regions such as Latin America can be expected to see sizable gains.

The natural gas industry is poised to scale new heights in this decade. Russia is likely to further consolidate its position as the largest exporter of natural gas to Europe. The ambitious Nord Stream pipeline, currently under development, and the planned South Stream pipeline project are expected to diversify Russia's gas supply routes to European and Asian consumers. While the construction of major pipelines will increase robustness in this sector, liquefied natural gas (LNG) export business is likely to act as the growth driver through significant capacity increases. Having emerged from its recessionary shackles, LNG looks set to witness sustained growth, primarily in the Asian markets.

Finally, the strengthening of crude prices towards the end of 2010 has renewed the optimism of energy companies in the unconventional oil and gas sector, which saw the signing of major deals during that year. Energy companies around the world have thus become more focused than ever on developing these resources to counterbalance their fast-depleting conventional reserves. North America is likely to remain the hub of the unconventional oil and gas industry in the short to medium term. Fueled by the unconventional shale gas revolution in North America, the sector may see increased interest in the potential markets across Europe and Asia. Asian NOCs will look to develop the significant unconventional oil and gas resources in their home countries, which will provide an opportunity for American international oil firms - the leaders in this area - to offer technological assistance.

Source: Datamonitor

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