Lower oil prices will also impact the pace of development of more expensive and less environmentally attractive oil supplies such as Arctic and oil sands resources. While these two resources currently are being attacked on environmental grounds, their vulnerability to low returns on capital investment may be what actually curtails their future development. Given this trend, oil companies will need to reassess their current portfolios against lower future oil prices. This reassessment may become a catalyst for accelerated merger and acquisition activity as large, integrated oil companies target undervalued, financially challenged smaller oil and gas companies possessing attractive resource holdings. The lower cost of capital and greater financial resources to withstand periods of increased commodity price volatility, coupled with greater R&D capabilities to reduce finding and development costs gives the large, integrated oil companies a significant competitive advantage.

Companies that are targeting offshore oil and gas developments exclusively may find a need to seek diversification of focus. That goes for both oil and gas producers and oilfield service companies. Here again, M&A activity may be the easiest and fastest way for single-purpose entities to become more broadly diversified. In the same vein, the governments of OPEC members and other net oil and gas exporters may need to reassess the impact on their budgets of reduced oil prices and possibly lower oil production. While there always remains the possibility that reduced oil prices will stimulate greater oil consumption in the future, the changing demographics of the global population and recent legislative initiatives to reduce energy consumption will bake into the future energy outlook a flattish energy demand growth profile.

The big winners in the PwC scenarios are those companies and industries that use oil and its by-products in their own output. Lower energy prices have already produced a resurgence of on-shoring previously exported businesses. Changing demographics in historically cheap labor markets such as China and Asia has led to U.S. manufacturing companies restarting domestic production of capital equipment and durable goods. Importantly, the belief in the potential of abundant natural gas supplies and thus cheap feedstock costs is leading to a revival of the domestic petrochemical industry and the emergence of a nascent liquefied natural gas exporting business. As it took decades for these companies to abandon the rapidly growing high-cost energy environment that characterized the U.S. during the latter part of the last century and the early years of the current one, manufacturers will not be quick to shift out of the U.S. at the first uptick in energy costs as they perceive that our nation has built a long-term global competitive cost advantage.

Eoin Treacy's view In the current environment where supplies of crude oil are still relatively tight the question of how the global economy will adjust to a medium-term supply surplus is not often considered. Nevertheless, it has been the opinion of Fullermoney for a number of years that unconventional oil and gas production is a game changer for the energy sector. The most immediate consideration is that the prospect of price spikes similar that posted in 2007 and 2008 is declining in the absence of a major OPEC supply scare. Despite short-term considerations, our medium to long-term view is that oil prices will trend lower in real terms over the coming decades.

The spread between WTI and Brent crude remains at historic wides near $20. It has been exacerbated recently by Saudi Arabia's supply cuts and bottlenecks in the USA's crude oil transportation network. This condition could persist beyond the short-term and is the premise on which the USA's competitive advantage in oil prices is based. The USA's competitive advantage in natural gas is even more pronounced. Henry hub prices are currently at $3.30. The equivalent contract in the UK trades at just over $10 and Asian prices are even higher.

Therefore the case is well made for energy intensive industries to choose the USA as a base rather than other jurisdictions. This is particularly relevant for the petrochemical, chemical, advanced materials, fertiliser, aluminium, metal refining, heavy industry and manufacturing sectors. Advances in the economy's efficiency in using energy should help to improve this competitive advantage.