For anyone dependent on oil and gas for Energy — which is to say nearly everyone in the developed world — 2015 has been a confusing year. Even as people rally for more renewable forms of energy, the demand for fossil fuels has never been higher. Yet, gas prices have vacillated all year long, dropping more than 40 percent and sending many Companies into a tailspin of layoffs and cutbacks. Throughout the year, the oil and gas industry has suffered quite a bit from standing on uncertain ground, which makes it all the more imperative for companies to lay a solid foundation for the year ahead.
2015 Reality Check
This year has been one of the most turbulent for the oil and gas industry in recent memory. As prices slipped, power exchanged hands, and the fundamental structure of our field is forever changed.
Shifting supply and demand. At the end of a four-year oil expansion, the United States now claims 20,000 shale wells, boosting the country’s production to nearly 9 million barrels per day and roughly 3.7 percent of the world’s oil supply. More and more, we find that LNG suppliers are finding consumers closer to the source — in the U.S., the Middle East, and elsewhere — and these fluctuating dynamics of supply and demand have swung long-held global distribution channels all over the map.
Changing trade patterns. Mexico is strongly considering a lift to its oil monopoly, which only strengthens the bond amongst the North American countries, providing them more resource independence. Further, Russia, China, and India have forged an alliance, swapping oil for natural gas in mutually beneficial trade. Yet, even as such cooperation leads to regional strength, these developments severely impact OPEC’s global market, disrupting traditional trade patterns and causing it to look elsewhere for opportunities.
Increasing pressure on OPEC. Since time immemorial, OPEC has maintained a stranglehold on the world’s supplies of oil, controlling the market in nearly every way. However, with many countries seeking alternatives to OPEC fuel, the cartel is struggling to retain its influence. Because of 2015’s drastic changes to oil and gas fundamentals as well as the various OPEC nations experiencing political, financial, and cultural upheaval, few experts expect OPEC to continue its primacy in the industry for very long.
Even with such drastic changes on the industry’s horizon, 2016 promises to be as profitable as prior years — as long as companies become agile and forward thinking.
Keep costs low. It is undeniable that the biggest oil and gas news story of 2015 was the breathtaking drop in summertime prices — from about $100 per barrel to below $45 — and as the industry continues to shift and change, we may expect similar price events in the coming months. Thus, companies should hunker down in preparation for a tumultuous year, market-wise.
It is wise to invest in projects that are unlikely to demand repeated expenses in maintenance and utility; for example, instead of concrete and metal structures — which take forever to build and cost a fortune to preserve — companies may opt for inexpensive, enduring fabric structures. It is always wise to keep spending to a minimum, but the lower costs can go in these unpredictable times, the better.
Remain flexible. The oil and gas industry is nothing if not cyclical. We have seen before similar fluctuations in price and struggles to garner resource independence. Though the developments of 2015 have been perhaps more intense than others in recent history, companies will be able to weather the new systems with the same strategy of the past: flexibility. An ability and willingness to adapt to the new market will protect companies from most of the damage inflicted by the changing fundamentals.
Consider renewable energy investments. For the foreseeable future, oil and gas has a prominent place in the energy sector. Still, changing consumer tastes — as well as the ever-diminishing availability of fossil fuels — indicate that oil and gas companies should diversify with more Earth-friendly endeavors. Industry leaders around the world have committed in one way or another to renewable energy: Exxon committed more than $100 billion to algae biofuel; Shell and Chevron have some of the largest solar farms in the world; and Statoil’s wind turbines provide energy to more than 220,000 homes every year. For public approval as well as insurance against future oil failure, companies should certainly start turning green in 2016.
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