Who would have thought that a lack of investment would lead to a massive reduction in the amount of oil discovered in the past couple of years?
Explorers in 2015 discovered only about a tenth as much oil as they have annually on average since 1960. This year, they’ll probably find even less, spurring new fears about their ability to meet future demand.
Just one tenth of the amount that has been discovered on average over the past 55 years.
Why is this significant? Well, because without replacing the reserves that are being used up we will find ourselves in a situation where oil becomes limited and prices will rise – hugely.
Not this year, or next, but in the coming 5 to 10 years. And this isn’t just a small reduction in the amount being discovered;
Just 2.7 Bbbl [billion barrels] of new supply was discovered in 2015, the smallest amount since 1947 . . . This year, drillers found just 736 MMbbl [million barrels] of conventional crude as of the end of last month.
New discoveries from conventional drilling, meanwhile, are at rock bottom, there will definitely be a strong impact on oil and gas supply, and especially oil.
For big business, big oil and countries like Saudi Arabia that can ride out the storm of low oil prices the future prospects look very good. Don’t be surprised to see oil at $200 per barrel within 10 years – nearly double any previous record high prices.
For smaller companies, individual employees and shorter-term investors the past couple of years have been pretty awful and look set to remain stagnant for the remainder of 2016 at least.
Following on from my previous article about oil prices, it’s interesting to hear what Donald Trump has to say on the prospects for the US oil industry.
Republican presidential nominee Donald Trump says that if elected he would immediately freeze new federal regulations – long the bane of the oil and gas industry.
His Aug. 8 speech in Detroit went further:
I will ask each and every federal agency to prepare a list of all of the regulations they impose on Americans which are not necessary, do not improve public safety and which needlessly kill jobs. Those regulations will be eliminated.
At face value this has to be good news for an industry blighted by regulations created by people who fail to understand the impact those regulations have on business and jobs.
Of course this is dependent on (a) Mr Trump getting elected and (b) Mr Trump keeping his promises – something politicians aren’t always the best at.
Oil prices continue to ratchet upwards – good news for the industry, not such good news for consumers.
The key for companies to start investing again will be when they see this price rally continuing for a few years and an oil price high enough to generate good profits.
This report suggests that people are now looking at oil prices above $60 per barrel next year which would certainly provide sufficient margin for investment.
Pretty much every single fundamental that we have points to those commodity prices going up, not down,” Ryan Sitton, one of three elected members of the Texas Railroad Commission
To give you some idea of the impact that low prices have had, the article points out
In Texas alone, Sitton said, state regulators are processing less than a third of the oil and gas well permits they did just two years ago, highlighting the wariness companies have to drill and pump more.
However, not everyone is so optimistic, another commentator stated;
Investors don’t expect prices to climb above $53 at all for the rest of the decade, and most shale oil producers in the United States have begun planning for what they are calling a “lower for longer” price scheme
These differences of opinion often come about as a result of different agendas, which has always been a problem in the Oil industry.
“A persistent surplus could weigh on prices, which have collapsed to a 12-year low of $27.10 a barrel last month from over $100 in mid-2014. OPEC’s 2014 strategy shift to defend market share and not prices helped deepen the decline.”
Really? I’d never have guessed. They go on;
“It seems that the overall negative effect from the sharp decline in oil prices since mid-2014 has outweighed benefits in the short-term,” OPEC said.
You don’t say . . . who would have thought that slashing oil company profits would halt trillions of pounds of investment by . . . oil companies. And that massive cuts in profits would drive down the share prices and value of stock held by . . . investors in oil companies . . . such that they won’t back new investment.
“There seems to be a ‘contagious’ effect taking place across many aspects of the global economy.”
OK, now you get it, so what’s the plan (my emphasis) . . .
“The monthly report from OPEC indicates supply will exceed demand by 720,000 barrels per day (bpd) in 2016, up from 530,000 bpd implied in the previous report.”
“Top OPEC exporter Saudi Arabia told OPEC it increased production to 10.23 million bpd from 10.14 million bpd in December. The secondary sources also reported higher output from major producers Iran and Iraq. Supply from OPEC could rise further due to the lifting of sanctions on Iran. Tehran is aiming to increase output by 500,000 bpd, which would fill most of the hole left by non-OPEC members.”
To paraphrase Cat from Red Dwarf;
“That’s your plan? Nice plan. Shall I paint a bullseye on my face?”
After a year of low oil prices which have brought cheaper fuel for most but lack of investment leading to wage and job cuts in the oil and gas industry have we finally turned the corner?
This article in World Oil cites the 27% rise in crude prices in three days amid news that maybe Saudi Arabia and Opec are ready to discuss a cut in output as long as it is a global cut and not just Opec countries.
Some people are trying to downplay the news, maybe they are right, the price of oil seems to be being driven purely by speculators and market makers rather than supply and demand fundamentals.
Remember how many times in the past, when the oil price went up, we were told it was due to instability in the middle east?
Can the Middle East have ever been less stable than right now? And yet oil is at lows not seen for 6 years.
As the price of oil continues to fall, pump prices are bringing some relief to consumers and businesses, but it seems the Saudi strategy of driving down prices to gain market share is a dangerous one to play as THIS ARTICLE in the DT today points out.
From a personal perspective, lower prices also adds uncertainty to new Oil & Gas Projects and implies that 2015 could be a quiet year in the Engineering sector.