An international environment characterized by oversupply and low prices, the ongoing transformations in the European mid-downstream businesses and the process of decarbonization in the energy system, represent the main challenges faced by the oil companies.
The surplus in supply and the downward dynamic on prices continue to require a strategy of capex rationalization, addressed to projects with lower break-even and initiatives finalized to cost reduction. To achieve the target of limiting global temperature increase, natural gas will play a central role as a main full alternative to carbon.
Companies operating in the energy sector have to face with challenges arisen from COP21 such as climate change and gradual decarbonization process. In this context, natural gas represents an opportunity for a strategic repositioning, due to gas low carbon intensity and the integration with renewable sources in order to produce electricity. To achieve these targets the promotion of policies aimed to replace coal in electricity generation will be crucial.
In 2016, the decline in non-OPEC production, particularly in the USA, and the robust increase in demand were offset by growth in OPEC production which has slowed the absorption of surplus in the world oil balance. Only at the end of the year, the return of a market control policy, led to a historic agreement between OPEC and non-OPEC in order to support the price, with a cut in production expected for the first half of 2017. The year closes with an average Brent price of 44 $/bbl, moving from the minimum of 31 $/bbl reported in January to 54 $/bbl in December.
The oil industry suffers from two consecutive years of cutting investment, with consequent reduction in exploration activities and sanctioning of new projects. Although 2017 is expecting a recovery in activities, the additional productions might not be adequate to satisfy the robust growth in demand. In the long-term oil supply must constantly provide the replacement of fields natural decline.
The oil companies need a stable increase in prices to accelerate activities and investments in order to recover productions.
In the European refining industry persists a strong competitive pressure by players located in the Middle East, the USA and Russia (main diesel supplier in Europe) and Asia, which present competitive advantages in terms of costs of procurement and efficiency.
Despite the capacity rationalization realized in recent years, Europe remains in a situation of structural fuel surplus in a context characterized by a more independent position of the United States, which traditionally represented a final market for European gas streams. In 2016, gas price trend is confirmed descendent due to the persistence of global oversupply. Against the backdrop of a slight recovery in demand, the supply of gas remains abundant and increasing compared to the previous year.
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