This will be one of those years when the oil and gas industry will be able to paraphrase Charles Dickens’ “A Tale of Two Cities.” Call it “A Tale of Two Industries.” The book would start with: “It was the best of times. It was the worst of times.” Some of the industry’s greatest successes in 2011 have been counterbalanced by some of its biggest challenges. From the eastern Mediterranean Sea to North Africa to the South China Sea to the Gulf of Mexico, politics and petroleum have changed the face of global power. Some of the biggest challenges are waiting in the future. The best of times in the eastern Mediterranean Sea was topped off at the end of the year by Noble Energy’s announcement of an estimated 7.0 trillion cubic feet (Tcf) of natural gas reserves offshore Cyprus. The company noted that fields in the Levant Basin have tapped an estimated 33 Tcf of reserves. The worst of times comes from the politics in the region. Turkey is rattling sabers around Cyprus as it watches the exploration success on the Greek side of the island. And, the conflicts around Israel are well known. Terrorists have blown up the gas pipeline from Egypt to Jordan via Israel at least 10 times this year. And, that brings the industry to North Africa. Political upheavals in Egypt, Tunisia and Libya have altered the playing field for the industry in the region. Although Libya continued to ramp up the production that was curtailed during the overthrow of the former regime, no one knows exactly how the oil and gas industry will change with the new regime. The same could be said for Egypt. In the Middle East, Iran is feeling its isolation and the impact of economic sanctions. The Iranian government is ending the year by threatening to shut down oil and LNG shipments through the Strait of Hormuz. The Iranian navy was conducting exercises in the Persian/Arabian Gulf to flex its muscles. The politics of oil could get very ugly in the Middle East in 2012. The confrontation over Iran’s development of nuclear weapons is heating up substantially. The United Arab Emirates are building an oil pipeline through Oman to bypass the Strait of Hormuz because of the threat of closure. The stage is set for more widespread military conflict than just Kuwait and Iraq. In the South China Sea, China and Vietnam are butting heads over which country owns what part of the seabed. This is brought on by successful exploration efforts by Vietnam. This is yet another flashpoint that centers around an oil industry success. And, now we are experiencing the best of times in North America. The shale plays have made the U.S. the largest natural gas producer in the world again. That same shale development is likely to make oil production grow dramatically during 2012. However, the worst of times come along with that success. The fallout from the Macondo disaster in the Gulf of Mexico continues to temper offshore exploration and development. The silver lining in this accident is the increased emphasis on safe operations offshore. That was a definite wake-up call for the industry. The controversy over hydraulic fracturing falls under the worst-of-times category. Just when the U.S. is reversing the decline in oil and natural gas production, the question of whether or not drilling and fracturing operations contaminate groundwater supplies could derail the current boom in the industry. That same problem with contaminating aquifers has created a major political dilemma for both parties over the approval of the Keystone XL Pipeline that would carry crude oil from Alberta to Houston. Both of these issues come down to rhetoric over reality. Of course, in today’s society with the Internet and social media, rhetoric is much more widely dispersed, more quickly to the detriment of reality. And, at the same time, that technology can be used to topple governments. In the end, foreign conflicts may trump the fears over hydraulic fracturing and Canadian syncrude. We hope that cooler heads prevail and that is not the case. We look for equitable solutions that will satisfy both sides of the issues. But, 2012 will still be a very lively year in the oil and gas industry. We wish you the best of times. Contact the author, Scott Weeden, at email@example.com.
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