Most in the oil and gas industry will admit that the past three years have been particularly tough. With a lack of investor confidence and lower oil prices, as well as many companies going bankrupt, all aspects have contributed to the downturn.
In fact, according to Fidelity Investments, stocks of oil and gas explorers, oil and gas equipment, and oil and gas drillers were some of the worst performing of 2017. A disconcerting statement for all involved, from companies to employees in the oil and gas sector. When put in laymen terms, it was inevitable that no money in the pot for wages or equipment to complete jobs ultimately led to redundancies, and a knock-on effect for suppliers of the sector.
But will 2018 be more of the same? Bolt tensioning specialist HTL Group weighs up what the year ahead will hold:
A promising start?
According to the Deloitte Center for Energy Solutions 2018 report, there could be new hope on the horizon — especially for those in the USA:
“In 2017, we saw US exports of crude, as well as liquefied natural gas (LNG) and refined products, continue to rise. This rise aligns nicely with the new administration’s motto of “energy dominance” for the United States”.
Innovoil’s Editorial Outlook for 2018 shares this positive outlook, discussing how Africa has been approved a major floating LNG (FLNG) which is providing optimism for the future.
The benefits are predicted to extend to Europe too. According to Innovoil, there has been a “flowering of interest in the North Sea in the last 12 months”, while also commenting that “three big deals” having taken place recently.
“The increase in interest has been driven by three factors: falling service costs, a newfound sense of stability in the oil price and the emergence of something like a consensus from buyers and sellers on asset prices. Furthermore, the UK’s regulator, the Oil and Gas Authority (OGA), has proved supportive and quick to respond.”
Industry tensions mounting?
Of course, not everyone believes in this positive industry pick-up, including some lead economists. Ricard Torné, Focus Economics‘ head of economic research, was quoted saying:
“In terms of supply, geopolitical risks such as growing tensions between Iran and Saudi Arabia could lead to disruptions in output.”
In the same document, Capital Economics economist Thomas Pugh stated that: “The big risk is the lack of upstream investment over the last few years causing a supply crunch out towards 2020, which could cause prices to surge.”
Rig count reductions?
Since November, the “oil rig count has gone down for a ninth week in 12”, reports Baker Hughes’ weekly report. This implies that U.S. energy firms are cutting down on their capital investment plans. Importantly, this is an indicator that U.S. shale producers are showing signs of slowing down.
However, experts predict a surge in demand next year, which will see global consumption climb above 100 million barrels per day for the first time.
“However, supply from OPEC – which still accounts for roughly 40% of the world’s crude – is expected to remain weak for at least part of 2018.”
What does this mean for the industry?
Due to low prices within the industry, operators have cut their capital expenditures, resulting in a limited number of new projects.
Although we may not match the triple-digit performance of 2014, oil prices are expected to steadily increase. Also, we are confident that improving the fundamentals have probably put a floor under crude prices for the time being, allowing energy firms to outwardly forecast and budget for investment in areas previously neglected for purposes of becoming lean.
Overall, suppliers have confidence that 2018 will bring new opportunities, despite more negative predictions.