EY - Forecasting the US energy landscape

Forecasting the US energy landscape

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The US is in the midst of an energy renaissance that has dramatically increased domestic production of oil and gas. But is continued growth in domestic production a certainty?

We surveyed accounting, finance and tax professionals across multiple segments of the energy industry to analyze the current state of the sector. Many of the respondents were senior-level professionals with years of experience in managing the financial dealings of their organizations.

Our 2013 Energy Tax and Policy Survey provides unique insight into how these professionals view the existing energy landscape, as well as their point of view about the future.

Capital investment

Throughout the recent economic downturn, the US has been a “safe haven” for energy investment, primarily driven by natural gas. The relative political stability, need for infrastructure and a looming export market have made domestic investment a more strategic choice for companies involved in upstream oil and gas activities.

However, it is likely that once other countries catch up in terms of shale development, foreign investment will again be attractive to global energy players. In terms of future investments, 51% of respondents said their companies plan to broadly increase capital investment in the US over the next two to three years.

Future capital investment expectations

EY chart showing future capital  investment expectations in energy

In terms of future investments, 51% of respondents said their companies plan to broadly increase capital investment in the US over the next two to three years.

While the oil and gas segment is seeking increased unconventional production, power and utilities companies are facing aging infrastructure that must be replaced regardless of tax policies or other incentives, likely driving their short-term investment plans.

Raising capital is likely to be an issue, however, and it may be difficult to justify increased rates to pay for capital investments if overall energy prices rise, as well.

Natural gas production and pricing in the US

In general, most survey participants believe that the coming years will bring additional regulations and taxes to the business of natural gas production.

For example, 88% of respondents believe that efforts by the Environmental Protection Agency (EPA) to regulate hydraulic fracturing will have some impact on domestic natural gas development, although 60% believe the industry will deploy technologies to comply with new regulations.

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Those beliefs are even more pronounced among oil and gas producers, with 93% of respondents agreeing that future EPA regulation will slow or stall the development of natural gas in the US.

The majority of respondents believe that natural gas pricing will rise over the next three years, with 57% saying they believe the spot price of gas at the Henry Hub will increase between 1% and 49%.

Mining and metals respondents were the most likely to forecast an increase of that magnitude; 68% said the spot price would rise at least 49%, compared with 65% of oil and gas producers and 57% of utilities.

Few respondents (just 7%) believe the price of natural gas will increase more than 50%.

Expected change in the US base price for natural gas

EY chart showing expected change in the US base price for natural gas

International competition

Given the potential policy changes in the US, Canada and OPEC, how competitive will US energy markets be over the next five years? Seventy-nine percent of respondents believe US energy markets will be competitive in the export marketplace, and 83% believe the US will be competitive domestically.

EY chart showing export and domestic energy use

In general, it appears that energy industry accounting, finance and tax professionals are more concerned about the potential impact of environmental regulations than they are about proposed changes to federal tax laws. This may be because existing tax incentives have not been the primary driver of investment decisions in recent years — especially for companies involved in oil and gas production.

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