Market Update: Oil & Gas - October 2018 | KPMG | SG
close
Share with your friends

Market Update: Oil & Gas - October 2018

Market Update: Oil & Gas - October 2018

A closer look at data security and the future transport fuel mix

1000

Related content

Data security in the oil and gas supply chain

With oil and gas prices forecast to show only modest gains in 20191, innovation will be critical for oil and gas companies to stay competitive. In the move towards greater efficiencies, the importance of digital innovations will continue to grow, and this will lead to greater risks of data breaches. One area of concern is data security in the supply chain, as recent well-publicized data breaches show that cyber criminals will exploit any avenue to access data. A 2017 study of cyber risk in operational technology in the oil and gas industry indicated that 69% of respondents were uncertain about the security practices of third parties in the supply chain, and 61% felt their own organizations faced challenges in preventing cyber attacks across the supply chain.2

For oil and gas companies, two major developments fuel these concerns. The first is digital transformation. Driven by cloud computing and infrastructure-as-a-service platforms, the move to digital is enabling the development of advances such as unmanned platforms and smart oilfield technology. With updates to many critical systems and processes delivered via software supply chains, malware attacks are increasing rapidly: Symantec saw a 200% increase in detected attacks in 2017. Hijacking software give attackers the ability to access otherwise well-protected targets such as industrial environments, and because the attacks use previously trusted processes as a vector, they are difficult to detect.3 The second is the trend towards contracting with third-party logistics providers. As oil and gas companies seek development of new energy sources and expand into more remote locations, outsourcing logistics can help solve issues with complex transportation and delivery issues. Because data security is only as strong as the weakest link in the network, and because 3PL often involves further subcontracting to freight or delivery services, it is critical that oil and gas companies develop programs to audit and test the data security of their 3PL partners. Contract reviews and risk assessment of 3PL security controls should be performed at minimum annually, and just as oil and gas companies should conduct annual background checks for both new and existing employees, they should also require that their supply chain partners are also conducting these checks.

Additional measures that oil and gas companies can take include network isolation and segmentation, separating critical traffic into discrete zones to minimize the lateral movement across networks that many attackers exploit. And because internal attacks, while less common than external attacks, have the potential to do much more damage, oil and gas companies should monitor and audit employee online actions, paying special attention to system administrators and other privileged users. They should also conduct exfiltration monitoring, in which traffic from the network outbound to the internet is monitored, to provide early warning of possible internal threats.4

  • Anton Oussov, Global Head of Oil & Gas and Head of Oil & Gas in Russia and the CIS, KPMG in Russia.

The future transport fuel mix and its impact on the O&G sector

After concerted effort and regulation over the last decade to decarbonize the power sector, both in the UK and globally, significant improvement in carbon emissions from the Power sector have been achieved. However, as the focus on decarbonization increases, the rise in transport emissions needs to be reversed. For example, in the UK, there has been a 5% increase in UK transport emissions despite overall decline of 18% in GHG emissions in 2012-20165; 56% of road transport emissions are from passenger cars and 30% from medium and heavy goods vehicles6.

To deliver a decarbonized transport system, we believe that by 2030, electrification will dominate in lighter vehicles, with a plural fuel mix developing for medium/heavy vehicles, ranging from electrification, Natural Gas and Hydrogen fuel cell vehicles. 

In this article, we will explore the regulatory and market backdrop (UK and beyond), the technology solutions as we see them and therefore, the overall impact this future transport fuel mix will have on the Oil & Gas sector.

Globally, Norway leads the EV revolution with c.50% new sales being electric predominantly because of EV purchase incentives active since 1990 and generous subsidies pushing down the price of EVs against ICE. In July, the UK Government announced the Road to Strategy that is the UK’s the first comprehensive strategy – a detailed 46 point plan with £1.5bn in funding7 – for decarbonizing road transport. It reaffirms the UK’s 2040 'conventional car and van’ ban, and also includes a 2030 'ambition' for 50-70% of new car sales and up to 40% of new van sales to be ultra low emission (ULE). In contrast, countries and cities around the world have set bans ranging from as soon as 2019 (Oslo)8 to 2030 (Netherlands)9. Further, likely exemption of non plug-in hybrids in 2040 and lack of clarity to tackle freight emissions, arguably, dilutes the UK’s overall ambition to make the UK a 'world leader in the low emission and electric vehicle industry’10.

Japan has a significant and detailed hydrogen strategy to develop the ‘hydrogen economy’ to achieve a carbon free hydrogen future by 2030 and beyond, across power generation, storage and transport11. By 2030, they aim to demonstrate Hydrogen power generation & establish environmental values assessment system within Power; develop the technology, set up strategic Hydrogen refuelling stations and undertake regulatory reform to replace combustion engine vehicles and petrol stations with fuel-cell vehicles and hydrogen refuelling; and develop H2 supply networks to replace residential energy systems.

Countries like Brazil leading on adoption of bio-fuels. They have a long history of using ethanol in vehicles since 1975 and current most cars run on E20/E25 (sugarcane feedstock). Mandated standards are currently at E27 and B7 with a 2030 target for fuel distributors to increase their biofuel mix to 18% of the energy/fuel mix distributed.

From a technology perspective, decarbonizing the road transport system is not a straightforward solution. Where historically, petrol and diesel have provided a simplified dual fuel mix across all vehicle segments, going forward, we see a plural clean fuel mix as different technologies and fuels are better suited for different vehicle segments and no one technology can deliver on the five parameters of:

  • Technical feasibility across all vehicle segments e.g. Electrification is proven for cars and vans but is not energy efficient for heavy-duty vehicles
  • Initial Government support, which is distributed across all technologies with varying intensities and varying by geographical focus/strategy as noted above
  • Economic viability e.g. Total Cost of Ownership parity expected for Hydrogen vehicles only by 2025
  • Sufficient infrastructure e.g. in the UK, today there are only 13,000 public charging points and 50 Hydrogen charge points
  • Sustainable at scale e.g. Natural Gas, electricity and Hydrogen needs to utilize renewable energy sources

The world nevertheless, is moving toward cleaner road transport, slowly but surely, the Oil & Gas sector will see significant disruption: from new energy demand for the power sector, to significant overhaul in the infrastructure and downstream footprint of refuelling stations with EV charging and Natural Gas refuelling, to significant impact on upstream blending and feedstock from biofuels. Electric Vehicles have fewer moving parts and have a significantly lower demand for lubricants and chemicals; require additional power balancing the trend of falling annual energy demand due to energy efficiency; but increasing peaks and consumption pinch points and lastly, require significant overhaul of refuelling footprint due to the predominant use of home charging. Hydrogen production will require significant change in operations from oil and gas players and increased power from power generators alongside infrastructure and refuelling requirements. Lastly, Natural Gas in transport will increase demand of Natural Gas upstream but also impacts change in operations to produce, store, and supply natural gas; alongside respective infrastructure and refuelling requirements.

The future transport fuel mix will create challenges and opportunities for the Oil & Gas sector, and the winners will be determined by those that can adapt to the disruption and monetize and scale their investments. 

  • Natasha Patel, Associate Director, Global Strategy Group, KPMG in the UK

Analyst estimates: oil

  2018 2019 2020 2021
Min  63.9 67.5 60.0 67.5
Average 73.0 74.3 68.2 69.4
Median  73.5 75.0 68.8 70.0
Max 77.5 80.0 74.0 70.0

 

  2018 2019 2020 2021
August Avg 73.3 71.9 68.2 69.4
September Avg 73.2 74.3 68.8 69.4
August Median 73.6 72.5 68.8 70.0
September Median 73.3 75.0 70.0 70.0

Analysts estimate: gas

  2018 2019 2020 2021
Min 2.8 2.6 2.5 2.5
Average 2.9 2.9 2.8 2.7
Median  2.9 2.9 2.8 2.8
Max  3.0 3.3 2.9 2.9

 

  2018  2019 2020 2021
August Avg 2.9 2.9 2.8 2.8
September Avg 2.9 2.9 2.8 2.7
August Median 2.9 2.9
2.8 2.8
September Median 2.9 2.9 2.8 2.8

Note: The forecasts/analyst estimates above from Brent & Henry Hub are an indication based on third party sources and information. They do not represent the views of KPMG.

Footnotes

1U.S. Energy Information Administration 'Short-Term Energy Outlook (STEO)' (PDF 1.07 MB)

2The State of Cybersecurity in the Oil & Gas Industry: United States (PDF 45 KB)

32018 Internet Security Threat Report

4SANS, Analyst Papers

5European Environmental Agency

6Department for Business, Energy and Industrial Strategy (2018), Final UK greenhouse gas emissions national statistics 1990-2016

7HM Government, ‘The Road to Zero’, 2018

8Businessinsider.com, 'Oslo Norway will implement its car ban by 2019’, June 2018

9Electrek.co, ‘Dutch Government confirms plan to ban new petrol and diesel cars by 2030’, October 2017

10HM Government, ‘Clean Growth Strategy’, 2018

11Ministry of Economy, Trade and Industry 2017, Scenario for Basic Hydrogen Strategy, METI, Government of Japan, viewed 29 March 2018

Connect with us

 

Request for proposal

 

Submit