Five-minute focus: the energy industry

Find out about this sector with Will Hodge's quick picture

The energy sector is one of the largest and most valuable industries on the planet and energy firms comprise four of the ten largest companies in the world. The industry is hugely varied and encompasses operations involving crude and refined oil, coal, gas, wind, solar power, nuclear power, and more.

Key companies

*BP (***UK)

Market cap (2011): £85.5 billion

BP is the UK's largest energy producer with operations in 80 countries, and in 2011 was the fourth largest company in the world by revenue.

*CNOOC (***China)

Market cap: £49.3 billion

CNOOC is China's third largest energy company and is the country's largest offshore oil producer.

*ENI (***Italy)

Market cap: £52.5 billion

ENI is Italy's largest company and is 30 per cent owned by the Italian government. It has operations in 79 countries.

*ExxonMobil (***USA)

Market cap: £256.5 billion

ExxonMobil is one of the world's oldest energy companies and is the modern incarnation of the Standard Oil Company, which was founded in 1870 by legendary US oil tycoon John D. Rockefeller.

*Gazprom (***Russia)

Market cap: £77.4 billion

Gazprom is Russia's largest company and is the world's largest extractor of natural gas, producing about 15 per cent of global supplies each year. It's predominantly owned by the Russian government.

*Petrobras (***Brazil)

Market cap: £98.7 billion

Petrobras is the largest company in Latin America. Its value was boosted by the discovery of major offshore oil reserves off the coast of Brazil in 2007.

*PetroChina (***China)

Market cap: £174.62 billion

PetroChina is China's largest company and one of the biggest companies in the world.

*Royal Dutch Shell (***Netherlands/UK)

Market cap: £148.1 billion

Shell has operations in 90 countries and is the largest company listed on the London Stock Exchange.

*Sinopec (***China)

Market cap: £61.5 billion

Sinopec is China's second largest energy firm and is the country's leading refined hydrocarbons producer.

*Total (***France)

Market cap: £76 billion

Total is France's largest company. Its operations span oil and gas extraction, refining and chemical production.

Key issues

China and India's race for energy

While the US remains the world's largest oil consumer, China and India are fast catching up as rising living standards lead to growing demand for cars, air-conditioning and air travel. With neither country boasting enough domestic fuel reserves to power their economies, the governments of China and India have been scrambling to secure access to overseas supplies. China's three state-owned oil major, Sinopec, PetroChina and CNOOC, have all been investing heavily in overseas firms. In 2011 Sinopec bought shares in Canada's Daylight Energy and Brazil's Galp Energia for a total of £4.6 billion. In 2012 it followed it up with an investment of £2.3 billion in North American firms Devon Energy and Talisman Energy. CNOOC has gone one better with the £9.5 billion acquisitions of Canadian oil sand specialist Nexen.

Oil prices

The past five years have seen some of the biggest fluctuations in crude oil prices ever recorded. In mid-2008, prices reached a historic high of £91.50 per barrel before falling to just below £19 by December. While increasing emerging market demand and recent unrest in the Middle East have boosted prices over the past few months, the cost of oil has once again started to dip following further economic uncertainty in the US and western Europe. In July 2012, a number of oil majors, including Chevron and Royal Dutch Shell, reported a drop in quarterly profits which they attributed to falling oil prices.

Outsourcing drilling

The so-called oil majors are increasingly outsourcing their drilling activities to smaller, oilfield services firms. Since the 1990s, specialist drilling companies, such as US-owned Schlumberger, have enjoyed growing investment which has led to impressive profits and share prices. This has allowed them to invest heavily in research and development and to become the major drivers of new technologies within the energy sector. One such innovation has been the horizontal drilling technique, which allows drilling shafts to change direction once underground and to drill at a 90 degree angle.

Clean energy development

The negative environmental impact of fossil fuels, coupled with dwindling supplies of them, is driving investment in clean energy technologies. One of the main areas of development in the UK has been in wind power with the country's climate and extensive coastline ideal for offshore wind power generation. In 2012, German electronics firm Siemens announced plans to build a new wind turbine manufacturing facility in the UK in partnership with wind-turbine developer Dong Energy in a deal worth a reported nearly £2 billion.

Nuclear making a comeback

Many thought the Fukushima plant disaster in February 2011 would sound the death knell for nuclear power. The catastrophe caused Japan to shut down all 50 of its nuclear reactors while other countries, including Germany, pledged to close their nuclear power plants. 18 months on, however, nuclear capacity continues to grow in many parts of the globe, including in Japan where two of its reactors have reopened since the disaster. It's estimated that global nuclear output will increase by between 44 per cent and 99 per cent by 2035 with the most significant growth expected to take place in China, India, South Korea and Russia.

Key recent deals

*Duke/Progress merger (***January 2011)

US energy firm Duke Energy, the largest electrical power company in the US, merges with Progress Energy in a deal worth £20.2 billion.

BP invests in India (July 2011)

BP makes a 30 per cent investment totalling £4.5 billion in India's government-owned offshore oil and gas field, representing the largest ever foreign direct investment (FDI) in India. In doing so, BP became the first international oil major to enter the Indian market.

Kinder Morgan acquires El Paso (October 2011)

US-based oil and gas producer Kinder Morgan acquires rival El Paso Corp. in a deal worth a reported £22.5 billion.

China enters Canada (July 2012)

Chinese largest state-owned oil firm, Sinopec, acquires a 49 per cent stake in Canada's Talisman Energy for nearly £1 billion, giving the company vital access to the North Sea oil reserves.

CNOOC takes over Nexen (July 2012)

China's CNOOC completes a long-standing takeover of Canada's Nexen Energy for £9.5 billion., giving it access to the country's oil sand reserves.