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Shale Gas to Have a Limited Global Impact
Indian oil and gas companies are likely to actively explore investment opportunities in shale gas globally, though this is unlikely to have any impact on improving the gas deficit scenario in India in the near term

Shale gas is set to remain a largely regional resource over the next one to three years with an uncertain global impact due to the increased technical challenges and higher development costs of the resource, according to the Deloitte Touche Tohmatsu Limited (DTTL) 2013 Oil and Gas Reality Check report. The study focuses on the primary challenges facing the oil and gas industry including: shale gas, liquefied natural gas (LNG) pricing, resource nationalism, national oil company (NOC) expansion, and market complexity.

On the Indian context, the report says that Indian oil and gas companies are likely to actively explore investment opportunities in shale gas globally, though this is unlikely to have any impact on improving the gas deficit scenario in India in the near term. The technical challenges and higher development costs will be the main constraints for exploration of shale gas in India.

Debasish Mishra, Senior Director, Deloitte in India said, "Although there is lot of excitement globally about new conventional gas finds and also developments in the shale gas front, shale is set to remain a largely regional resource over the next one to three years with an uncertain global impact due to the increased technical challenges and higher development costs of the resource." "We expect Indian oil and gas companies to actively explore investment opportunities globally," he added.

Shale Gas - A global or regional resource?
The success of North American shale gas has spurred interest in duplicating the results in other countries. However, according to the report these countries still have a long road ahead before they can begin to see the gas volumes and supporting infrastructure needed to dramatically lower domestic natural gas prices and create export opportunities.

Given the greater technical challenge of shale gas and higher development costs, exploitation of shale resources is not easily replicable in other markets. While some countries are making progress, over the next one to three years it will remain a largely regional resource with an uncertain impact on the global market past this timeframe.

LNG Pricing - The End of Oil Indexation?
Oil indexation will be one of several pricing approaches for LNG long-term contracts in Asia Pacific. As diverse supplies enter the LNG market over the next 12 months through to 2017, the dynamics of supply competition will drive transition away from contracts purely indexed to oil prices and at high oil price parity in the Asia Pacific region. A future mixture of contract pricing approaches: prices set lower from oil price parity, hybrid indexation, and full gas hub indexation.

Resource Nationalism - Entering a Period of Low Tide?
In the short term, resource nationalism will recede as new resource-rich countries seek to attract investment and access technology. Investors and global oil and gas companies view resource nationalism as an unmanageable risk. In the long term, resource nationalism will rise as countries progress through the stages of resource development and gain technological expertise.

National Oil Companies (NOCs) - Capturing the Playing Field NOCs are evolving their global expansion by competing for complex barrels. While the global expansion of NOCs is not a new story, the fact that expansion strategies differ between oil and gas is a recent and important development. NOCs have evolved from players focused on production in domestic oil resources to becoming interested in more complex barrels in unconventional oil, and also pursuing gas.

Managing Market Complexity
The direction in which US medium-size integrated companies, supermajors, and NOCs have evolved shows that vertical integration, as the winning business model in the oil sector is far from becoming a market certainty. Instead, vertical integration largely depends on aligning company strengths and strategy with local and global market conditions. Deloitte's analysis indicates that uncertainty is very much the order of the day. How companies react to and deal with this uncertainty is changing the notion of a singular business model and giving rise to different business models.

"The global oil & gas industry has evolved to a point where market complexity is best managed through diversification of companies, partnerships, and flexible business models. As we look towards the next three to five years, what previously seemed more certain will become less so," said said Adi Karev, DTTL Global Leader, Oil and Gas.

"In fact, even the decade s primary gamechanger - shale gas- will likely have less of a definitive global impact and become a more regional resource, with certain countries able to export surplus gas via LNG. LNG pricing will become more complex using various pricing models; and the impact of LNG exports on the global market will depend on countries' resource policies, which ebbs and flows as production increases, making NOC and IOC partnerships grow in importance," Karev added.