High oil prices will support strong oil and gas activity in 2012

High crude prices will continue into 2012, but natural gas prices will continue to languish for the year, Moody's said in its annual look ahead across the oil and natural gas industry.
Both oilfield services and drilling companies will continue to benefit from high oil prices that drive exploration and production activity. This production effort will keep enlisting the help of oilfield service and drilling companies, and will raise a need for new infrastructure, including pipelines, serving areas that have only recently begun producing energy.
But the rating agency said a supply glut will keep pressure on natural gas prices in North America, thanks largely to the brisk pace of shale production, and the drive to expand unconventional resources will also step up regulatory uncertainties, the ratings agency said in its new report.
Moody's expects shale gas ventures to ramp up in 2012, as oil majors such as Royal Dutch Shell, BP and Total pursue opportunities in North America, as well as such new shale areas as China, Argentina and Poland. Asian national oil companies will also look to expand their shale presence in North America and elsewhere.
High crude prices appear poised to persist in 2012, as political unrest in the Middle East and North Africa continues, the report said. An uprising in oil-producing Syria continued into 2012, and Iranian tensions with the US and Europe appeared to be rising as the year began. But oil prices could also see some pressure in 2012 from a contraction in Europe's economy, or slowing growth in China and other emerging economies.
Moody's price assumption for 2012 involves a narrower spread between US and European crudes, with West Texas Intermediate averaging about $90/bbl in 2012 and Brent about $95/bbl. Moody's assumes a price of $3.50 per thousand cubic feet of natural gas for 2012.
The push to expand shale production, which has altered North America's energy map in recent years, will keep providing opportunities for midstream companies to build new infrastructure to serve them, Moody's said. This will benefit such companies as Plains All American Pipeline and Kinder Morgan Energy Partners, the report said.
Meanwhile, refining and marketing companies will be pressured by overcapacity that will swamp current demand, Moody's said. Some US and European refineries may be idled or closed, Moody's said, warning that the worldwide balance in refining capacity can be difficult to predict.
One possible hazard in 2012 lies in the current US regulatory environment, which will only increase in complexity as horizontal drilling and fracking activities expand, the report warned. Companies and regulators will increasingly debate business perspectives, geological conditions and environmental concerns. Moody's expects companies' regulatory compliance costs to rise only marginally for 2012, however.