We have witnessed high volatility in oil and gas prices with concerns about availability dominating the first half of 2008. As the reality of the current global situation became more evident in the second half of the year, prices were subsequently impacted by downward adjustments to energy demand forecasts. Combined with a heightened risk aversion in speculative capital, this led to oil (Brent dated) being traded around USD100 lower in December 2008 than at July 2008's all time high of USD144/bbl.

The industry has experienced a rapid increase in costs and capital expenditures over the past three to four years. This has been the result of both limited competition and capacity in the service industry and increased complexity of new projects. Although it could be expected that lower oil and gas prices and a lower volume of overall industry activity would contribute to downward pressure on costs in the services and manufacturing industry, the technical challenges resulting from increasing project complexity are unlikely to relent and will maintain an upward structural pressure on costs. In this environment, the industry is expected to increase its focus on cost control and capital deployment efficiency through tightening prioritisation among existing opportunities.

International politics and adjustments to energy policies have also continued to influence the business environment in resource-rich countries across the world. In the short to medium term, there could be a potential for improved access and fiscal terms in some regions as a result of the global turmoil. However, it will not reduce the need for continuous focus on building and utilisation of technical and commercial capabilities in order to turn oil and gas resources into productive capacity.

In recent years the industry has been characterised by a much higher level of competition, both in terms of the number and type of participants. This is unlikely to change. However, the sharp fall in share prices in general combined with the degree to which companies have access to capital to fund their future developments could act as catalysts for change in the competitive landscape.

The long-term challenge of providing the world with secure, affordable and environmentally acceptable energy remains as challenging a reality as ever. In combination, the above developments within the industry are likely to result in a continued highly competitive environment for scarce international upstream opportunities.