The energy industry is going through a significant change, both in the U.S. and globally. Energy companies all over the world are rethinking their strategies to adapt to the new normal. SHALE magazine editors sat down with Regina Mayor, Global Sector Head and U.S. National Sector Leader of Energy and Natural Resources at KPMG LLP to get a lay of the land. Below she shares her insights.
SHALE Magazine: You attended the World Economic Forum in Davos-Klosters, Switzerland, and Gastech Exhibition & Conference in Tokyo earlier this year. What were some interesting topics you heard at the conferences? Did anything surprise you?
Regina Mayor: This was my first year attending Gastech and the World Economic Forum [WEF], and they were both tremendous experiences. At WEF, I found significant interest in topics around the rise and impact of populism, the changing geopolitical landscape, and the number of nations turning their economic policies inward. There was also discussion on the concept of either-or problem-solving. In energy, these scenarios might look like low cost or carbon neutral, global commodity or energy security. We need to shift our thinking and focus on an all-of-the-above strategy to provide low-cost resources in an environmentally sustainable way while generating returns for shareholders and creating value for our customers. We have to find more balanced solutions.
At Gastech, which is primarily focused on the gas and LNG industry, I found that LNG is still a strong, long-term market; but it will get more competitive, and price points will likely go lower given robust global gas supplies. However, the industry overall is bullish on long-term potential with several developing growth opportunity areas: creation of demand in less mature markets to bring electrification to the 1 billion people who, today, do not have access to electricity; providing small-scale LNG to island nations; and being an integrated “gas and power” solution, potentially serving as a bridge while renewables scale and mature. LNG is currently viewed as a buyer’s market. Historically, banks and other financing vehicles rely on contract commitments, but long-term, committed contracts in a buyer’s market don’t make sense; therefore, the industry has to come up with new ways to finance projects.
At both conferences, it was incredible to hear how well-versed the rest of the world is in American politics and the keen insights they derive even though they don’t live here.
SHALE: These are huge and prestigious events with many different countries represented. Did you sense any significant differences between the U.S. energy industry and any foreign energy practices?
Mayor: I saw more similarities than differences, in how we’re all feeling the shifting energy landscape. In my discussions with CEOs and other global energy leaders, it was abundantly clear that no matter where in the world a company is based, they’re all grappling with the rise of major, disruptive change across the industry. The need to transform their operating models to be agile is top priority for industry executives.
SHALE: What are the new technologies or breakthroughs being discussed by industry executives? How could these innovations affect the U.S. and the global energy industry?
Mayor: There are a number of technologies shaping the industry. Some trends that we’re having a number of client discussions around are renewables technology, the hydrogen concept or “creating energy from air,” battery storage, and digitalization in the industry. Innovative technology is booming right now and has the potential to really disrupt the industry. Industry players have the opportunity to embrace these technologies and really lead the way.
Another newer concept that I’m fascinated by is the advent of autonomous and driverless vehicles. This is a trend that has had significant effects on the automotive industry, and is now starting to fundamentally shape the energy industry as we look at its effect on fuel efficiency standards, miles traveled, and gasoline consumption. The future of fuels manufacturing and retailing could potentially change as this new social and digital trend, changing consumer attitude and spending, and unique approach in mobility services transform the approach to personal transportation. It’s very interesting and exciting to watch unfold.
SHALE: From your view of the global energy landscape, do you foresee any changes coming for U.S. energy companies and/or the energy market?
Mayor: There is an abundance of opportunity for our industry in the U.S. While global opportunities exist, the focus really resides in the U.S. North America currently has five times more assets on the market than other regions. Global E&P spending is expected to increase 7 percent in 2017, and North American spending is expected to increase 27 percent. High-quality unconventional assets in U.S. basins and global LNG-related assets will likely find buyers. Within North America, the Permian Basin has been the primary driver of recent acquisitions. U.S. deals accounted for 60 percent of the global market volume, and 77 percent of global market value in 2016.
With expected stabilization of commodity prices, the market for M&A [merger and acquisition] activity is poised for an increase. E&Ps are focusing again on growth, which will drive acquiring incremental assets to portfolios. We expect to see larger M&A deals primarily in deep water and LNG. Stable players — those with the most cash and those that weathered the downturn — will be the primary drivers of activity. On the contrary, sellers of assets will include those most affected by the downturn, as well as larger players with portfolio rationalization programs.
SHALE: As KPMG’s global and U.S. energy leader, has your international role provided you with any new insight into the energy industry that will improve the services offered by the energy segment at KPMG?
Mayor: Since taking on my role as the global energy leader, I’ve realized even more that there is power in connectivity. KPMG is a global business, serving the needs of global companies. In the energy sector, we’re experiencing significant change. The need to be flexible and adapt to this change is challenging companies to redefine their value and competitive advantage. We understand that the needs of each of our clients vary greatly, and our team is committed to understanding our clients, their businesses and the issues they face. We’re constantly looking for better practices and emerging technologies, which helps us provide a highly informed perspective and high-quality service.
SHALE: Overall, what is your feeling on the industry going forward?
Mayor: There is a sense of overall optimism currently running through the industry. Prices are stabilizing, break-even prices are becoming more sustainable and industry leaders feel that growth is on the agenda. The energy sector is really quite an amazing place to be right now. We’re a unique industry: Energy makes the world a better place, and we have the potential to change the dialogue across the globe. Especially with the abundance of innovative technologies — while they may be disruptive, they’re putting us in a position to make big change … to cross into new frontiers. We have the ability to bring energy to less mature markets — to bring electrification to the 1 billion people who today do not have access to electricity. And electrification is directly tied to wealth creation, so by taking part in these programs, we’re truly contributing to making the world a better place. Despite the downturn, there is so much we are doing in the sector. I’m personally so excited about the opportunities ahead and couldn’t be more proud to be a part of this industry!
Regina Mayor is Global Sector Head and U.S. National Sector Leader of Energy and Natural Resources at KPMG LLP. She is based in Houston.