Issue No. 48, March 2017
Regional Non-Technical Risk Trends Affecting Oil and Gas / Energy Investments
Investment in the global energy sector has experienced impressive swings in recent years. Sharp declines in oil and gas industry investments have been partially offset by rising investment in renewables. The shift in investment toward renewables has been driven by corporate and national climate change policies, market/consumer demand for lower carbon alternatives, and the continued drop in the cost of developing and operating wind, solar and other technologies. The Energy Information Agency summary below demonstrates the short term trends.
These trends are driven by the world’s largest economies – the OECD and BRIC (Brasil, Russia, India, China) countries, which represent 84% of the world’s economy (World Bank Group, 2017). But, what about the smaller yet emerging markets of the world? Emerging markets are the areas where investors may find untapped opportunities for smaller scale but higher growth energy investments. Traditionally these markets also carry a higher level of uncertainty and risk for investors. But clarifying some of the uncertainty and learning how to better understand and manage the socio-cultural / ESG risk of working in these countries may help create important new pathways for energy industry investment growth.
Acorn International is tracking important energy industry trends in regions that are home to many of these small but potentially high growth energy market economies (the focus areas of our business). Some key trends include:
Government Policies Key to Emerging Market Growth in Renewables
While India, China, US and other large economies dominate spending on renewables, government-led initiatives can create significant opportunities in smaller countries. For example, Morocco, Uruguay, the Philippines, Pakistan, and Honduras all invested more than $500 million in renewable energy generation in 2015 (last year of complete data) as a result of aggressive feed in tariff incentives (UNEP, 2016). Similar policies are under consideration in developing countries world-wide and will continue the trend of country specific investment hot-spots.
Floating LNG Import Terminals Opening New Markets to Natural Gas
LNG liquefaction mega-projects commissioned during times of high oil and gas prices combined with new supply unleashed by fracking have created a global glut of LNG that is reshaping the industry. Once dominated by long term supply contracts, a new spot market is emerging. Low cost, low environmental impact Floating LNG regasification vessels will benefit from this new LNG market and will open new markets. Argentina, Egypt, and Pakistan have led the floating LNG development trend in recent years and Bangladesh, Ivory Coast, South Africa and Panama could be next. With the number of floating storage and regasification units (FSRU) set to grow by 40 percent to 34 vessels over next two years and LNG supplies set to increase by as much as 50 percent between 2015 and 2020, this is a market segment to watch (Shappard, D. 2017).
Countries Re-thinking Regulation of Oil and Gas Sector
Deloitte estimates that the downturn in oil prices curtailed $620 billion of projects through 2020 (Deloitte, 2017). This reduction in capital spending is making countries rethink their competitiveness, both related to financial terms and environmental regulations. This is most prevalent in Latin America, where countries including Argentina, Brazil, Colombia, Mexico, and Peru have onerous requirements. In Peru, for example, Acorn International was engaged to help the government find a way to make its oil industry more attractive to investors, given that nearly 75% of its oil and gas concession areas are shackled under force majeure due primarily to community opposition.
Investing in energy developments in emerging markets can be particularly tricky given the complex and high-stakes socio-political risks and environmental and regulatory challenges. But those equipped to understand these risks more clearly and manage them more reliably may find exceptional and otherwise obscured opportunities for growth. Helping to identify and manage those risks early in the investment process and inform decision making is our core business.
World Bank Group, 2017. Gross Domestic Product Ranking Table.
UNEP, 2016. Global Trends in Renewable Energy Investment. http://fs-unep-centre.org/sites/default/files/publications/globaltrendsinrenewableenergyinvestment2016lowres_0.pdf
Shappard, D. 2017. “Ships steer bullish bets for liquefied natural gas”. Financial Times, January 23, 2017.
Deloitte, 2017. Oil and Gas Industry Outlook 2017. https://www2.deloitte.com/us/en/pages/energy-and-resources/articles/oil-and-gas-industry-outlook.html
Acorn International LLC delivers social and environmental risk management consulting services to the extractive industries and investors worldwide. We work with local partners in over 80 countries worldwide. Use of these local specialists is paramount, particularly in developing countries, where information is often scarce, second-hand, and unreliable. We look forward to engaging in continuous improvement for the industry and building capacity with our partners.
Issue 47 -Social Risk Trends in Mexico's Energy Industry
Issue 46 -Hi-Tech for Non-tech
Issue 45 -Culture – Understanding its Impact on Business and Community EngagementNot Too Technical
Issue 44 -Not Too Technical
Issue 43 -Myanmar – Another step in the transition
Issue 42 -Meeting expectations in human rights reporting - a delicate balance
Issue 41 -FPIC Is Here To Stay
Issue 40 -A Multi-Stakeholder Partnership in Ghana: Marine and Fisheries Management
Issue 39 -The Colombian Social Responsibility Framework: An Evolving Model
Issue 38 -Social Network
Issue 37 -A Community Look-back on Ebola
Issue 36 -Ghana and the Voluntary Principles: Implementing the Human Rights Protection Framework
Issue 35 -Inundation
Issue 34 -Colombia: Local Hiring Requirement for O&G Industry
Issue 33 -Mature and Frontier Mining Geographies: Where does Greater Risk (and Reward) Reside?
Issue 32 -Local Content in Mining: Increasing Expectations and Potential Solutions
Issue 31 -Fast Money Beware: Non-Technical Risk Due Diligence
Issue 30 -Social and Environmental Performance - Considerations for Difficult Commodity Price Environments
Issue 29 -A Window into the Opposing View - Stakeholder Concerns about Oil and Gas in Mexico
Issue 28 -Why Non-Technical Risks Matter to the Mexican Apertura
Issue 27 -Equator Principles:Drivers of Sustainability in the Oil and Gas Industry?
Issue 26 -The Transparency Tightrope: Examining UNEP’s New Access to Information Policy
Issue 25 -July 2014: Bouston
Issue 24 - July 2014: Land Tenure and Property Rights - Where Legal Compliance May Not Be Enough
Issue 23 - May 2014: 3 Things I Learned in Mexico - Non-technical Risks in the Oil Industry
Issue 22 - April 2014: Capacity Building on Stakeholder Engagement
Issue 21 - March 2014: Above-ground Facilities and Stakeholder Engagement: Deploying the 'CAC'
Issue 20 - March 2014: A Starting Point for Shared Equity
Issue 19 - March 2014: What It Takes to Run a Great Consulting Firm
Issue 18 - February 2014: Considering Human Rights - Trends and Lessons in Oil and Gas Impact Assessments
Issue 17 - June 2013: Managing Environmental Health in International Development Projects
Issue 16 - January 2013: Integrating Environmental and Social Performance throughout the Project Lifecycle
Issue 15 - January 2013: The State of Shale Play in 2013
Issue 14 - August 2012: Building Environmental and Social Governance in Host Countries
Issue 13 - May 2012: Human Rights and Business: A New Era
Issue 12 - February 2012: Extractive Industries Confront Pressure for Greater Transparency
Issue 11 - January 2012: Key Updates to the IFC Sustainability Policy and Performance Standards
Issue 10 - June 2011: Oil & Gas and NGOs: New Rules of Engagement?
Issue 9 - February 2010: Annual Study of Sustainable Development Priorities
Issue 8 - January 2009: Annual Study of Sustainable Development Priorities
Issue 7 - May 2008: Top Ten Lessons Learned About Health Impact Assessment
Issue 6 - January 2008: Annual Study of Sustainable Development Priorities
Issue 5 - September 2007: Results of web forum with our International Partners
Issue 4 - January 2007: Annual Study of Sustainable Development Priorities
Issue 3 - May 2006: Suggestions and tips for safe international travel
Issue 2 - January 2006: Annual Study of Sustainable Development Priorities
Issue 1 - November 2005: The Top 10 “unspoken" criteria for determining the success of EIAs