KPMG’s annual energy survey, which polled more than 100 senior executives in the U.S. representing global energy companies, found that nearly three-quarters (73 percent) of energy executives believe the U.S. can attain energy independence by 2030, or sooner – up 10 percentage points from KPMG’s 2013 survey. Of those 73 percent, 17 percent believe the U.S. could fully meet current energy demand with only U.S.-based sources by 2020.
Other than the continued development of conventional and unconventional domestic energy reserves, the KPMG survey found that 37 percent of executives cite the development of energy transportation infrastructure such as pipelines and transmission lines as the most important action they believe the U.S. should take to attain energy independence. Twenty-three percent cite greater use of renewable energy sources and 20 percent point to greater use of alternative fuels for transportation, including natural gas, electricity and biodiesel.
“Technology continues to offer the promise of a greener, safer, cheaper and more reliable energy future. Exciting new breakthroughs are leading to a whole new generation of domestic oil and gas production, particularly from deepwater, oil sands, and shale assets,” said John Kunasek, national sector leader for energy and natural resources for KPMG LLP. “These developments are contributing to a significant transformation of the energy industry, adding to the increased optimism among energy executives on the potential for U.S. energy independence and the overall future of the energy industry.”
Focus on Growth
The 2014 Energy Outlook Survey found that more than half of energy executives indicate they will focus on driving accelerated growth in the next 3 to 5 years. In order to drive accelerated growth, 54 percent of executives cite dedicated leadership focused on executing hyper-growth plans, 48 percent cite strategic planning processes (including multi-year plans), and 46 percent indicate significant funds allocated to mergers and acquisitions.
Further, the survey found that nearly one-third (30 percent) of executives plan to increase spending the most over the next year on business model transformation, followed by employee compensation and training (29 percent), expanding facilities (25 percent) and geographic expansion within the U.S. (25 percent).
“There are tremendous opportunities for growth, but the uncertainty around how to drive growth in this environment remains a major concern for executives,” said Regina Mayor, advisory industry leader for energy and natural resources for KPMG LLP. “Companies that are more agile and responsive in updating their business models will be better positioned to translate current marketplace pressures into competitive advantages.”
The survey also found the number of executives expecting to be involved in a merger or acquisition as a buyer in the next year almost doubled from 2013 sentiment. Sixty-five percent of executives feel very likely (31 percent) or somewhat likely (24 percent) to acquire stakes in one or more companies over the next three years. This is compared to the 2013 results in which 11 percent felt very likely to be a buyer and 22 percent felt somewhat likely. When asked what will be the primary drivers of acquisition activity in 2014, energy executives most frequently cite consolidation of core businesses and competition (28 percent), customer growth (24 percent), and geographic growth (23 percent).
“Today’s environment is driving the need to improve performance and consolidate core businesses through increased mergers and acquisitions, streamlined operations and emerging technologies,” Kunasek said. “Our clients indicate that access to technology and portfolio optimization will be instrumental in driving M&A activity in the coming year.”
In other findings, 70 percent of executives expect the U.S. economy will significantly or moderately improve in the next year – a 29 percent increase from last year. Fifty-five percent of executives expect U.S. headcount to increase by one to 10 percent, a 17 percent increase over 2013.
Energy executives appear confident that oil and gas pricing will remain relatively stable for 2014. One quarter of respondents are bullish that the average price (per MMBtu) of natural gas will fall in the range between $3.00 – 3.75, while another 47 percent say $3.76 – 4.50. Additionally, 44 percent of survey respondents expect the average price (dollar per barrel) of Brent Crude oil for 2014 to fall in the $106-111 range, with another 38 percent expecting $100-105 range, and 6 percent expecting $99 or lower.
“Natural gas production in the U.S., and its reputation as a low-cost alternative to other energy sources, is shifting the future of the energy industry,” Mayor said. “Additionally, shale is quickly shifting from ‘the next big thing’ to an essential part of the global energy sector, and while the U.S. is still ahead in terms of commercializing this valuable asset, a series of discoveries and technological advances is opening up the playing field to new markets around the globe.”
Barriers to Growth
Despite an overall optimistic outlook, survey respondents most frequently cite energy prices (40 percent), regulatory environment (31 percent), impact of new regulations/legislation (32 percent) and cyber-threats (23 percent) as the greatest issues posing a threat to business models.
Additionally, when asked about the most significant growth barriers facing companies over the next year, execs most often cited energy prices (38 percent), increased taxation (34 percent) and regulatory and legislative pressures (29 percent).
“Energy companies are operating in a dynamic and exciting environment, but regulation uncertainties and vulnerability around evolving cyber threats raise genuine concerns for industry executives,” said Kunasek. “What is exciting to see, however, is despite these concerns, energy executives are positioned for future growth of both their own organizations and the energy industry as a whole.”
About KPMG LLP
KPMG LLP, the audit, tax and advisory firm (www.kpmg.com/us), is the U.S. member firm of KPMG International Cooperative (“KPMG International”). KPMG International’s member firms have 155,000 professionals, including more than 8,600 partners, in 155 countries.