Accounting and Economics in Oil and Gas

Running head: ACCOUNTING AND ECONOMICS IN OIL AND GAS
Accounting and Economics in Oil and Gas
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ACCOUNTING AND ECONOMICS IN OIL AND GAS1
Table of Contents
Introduction......................................................................................................................................2
Uncertainties related to oil and gas industry....................................................................................3
Volatility in global oil price.........................................................................................................3
Oil and gas industry trends..........................................................................................................6
Environmental concern..............................................................................................................11
Limited Reserves.......................................................................................................................12
Future planning..........................................................................................................................13
Conclusion.....................................................................................................................................14
References......................................................................................................................................16

ACCOUNTING AND ECONOMICS IN OIL AND GAS2
Introduction
The oil and gas industry is one of the most vital industries in the world economy. Spread
of the industry is actually global with industry’s operation occurring all over the globe from
Australia to Alaska, from China to Peru and in every habitat from Arctic region to desert, from
mangrove to offshore and from temperate woodland to tropical rainforest. Dominance of the
industry continues in parallel with economic advances that the world economy is experiencing
since 20th century. The single industry dominates majority of energy mix globally. Despite
significant importance of oil and gas industry the industry is facing several challenges. Globally,
oil prices are highly volatile. The volatility in oil price is attributed from different factors related
to demand, supply and different geo-political events. The ongoing lower price environment
persisting since last few years has affected almost all the segments involved in the value chain of
oil and gas. The lower price means a lower revenue and profit and therefore, an uncertain future
growth. Imbalances between supply and demand is a series cause of concern for the industry.
Because of a downturn in oil prices many of the major investment projects of the industry have
been deferred interrupting supply (Dickson, Slaughter & Mittal, 2019). With a decline in
potential supply, global demand of hydrocarbon is growing indicating a potential challenge for
oil companies to meet the demand. The stringent environmental regulation to minimize the
environmental damage associated with extraction and related intermediary process requires oil
companies to adapt new technology to comply with the regulation. This has increased significant
cost burden for the industry. Another concern for oil companies is the limited reserve of
conventional sources of oil and gas. The paper sheds lights with some of the current issues
concerning the industry by discussing price movement, industry trends, environment concerns
and problems of limited reserve.

ACCOUNTING AND ECONOMICS IN OIL AND GAS3
Uncertainties related to oil and gas industry
Volatility in global oil price
The first and foremost important source of risk for global oil and gas industry is the
fluctuation in crude oil prices in the international market. Crude oil is exchanged in the global
market. Price of different streams of crude oil that are produced globally though move almost
together there is however differential in movement of prices depending on type of crude oil such
as light weight, high-sulphur and low sulphur crudes (Lux, Segnon & Gupta, 2016). The figure
below summarizes trend in global crude oil prices since 1999 to till date.
Figure 1: Trend in global crude oil prices
(Source: Eia.gov, 2020)