"The challenges of long-term planning", an article... | KPMG | RU

"The challenges of long-term planning", an article for the "Neft Rossii" magazine (issue 10, October 2016)

"The challenges of long-term planning", an article...

Factors that oil & gas companies need to consider when developing a long-term strategy.

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Partner, Head of Oil & Gas

KPMG in Russia

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One of the important – and yet unanswered − questions to consider when planning is "What is oil & gas economic efficiency in the long term compared to alternative energy sources?" For example, natural gas retains a good potential as a coal replacement, and remains an important energy source in the utilities sector globally. However, a lot of countries focus on solar energy and wind power research and development, with an aim to replace traditional energy sources, and this may negatively affect gas demand in the future. When it comes to oil, we can say that if no game-changing innovations are introduced, then oil demand is likely to increase, along with an increase in petrol and diesel fuel demand. However, even then we cannot be sure that the internal combustion engine will not be modified to use less fuel, or even replaced with a completely different engine type − hence the outlook remains unclear. In view of all these factors, companies should be rather cautious when it comes to long-term planning: they should invest conservatively (focusing on the most profitable areas), restrict debt financing, distribute significant dividends (for entities), and create sovereign wealth funds with a diversified asset portfolio (for countries).

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