Predictions for the gas and oil industry for 2018
Over the last three years, the oil and gas sector has faced some difficult situations. With a lack of investor confidence, and lower oil prices, as well as many companies going bankrupt, all aspects have contributed to the downturn.
Out of the 11 worst performing industries of 2017, stocks of oil and gas explorers, equipment and drillers were included according to a report presented by Fidelity Investments (1). 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.
According to a study conducted by the Deloitte Center for Energy Solutions, the industry is still hopeful — especially in the United States:
“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”. (2)
What does the future look like?
According to InnovOil, the USA aren’t the only ones who will witness better changes within the industry during 2018. In their Editorial Outlook for 2018 (3), they discuss how major floating LNG (FLNG) has been approved in Africa, providing optimism for the future.
Europe are likely to benefit this year, according to the same report by InnovOil which stated that there was a “flowering of interest in the North Sea in the last 12 months” with “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.”(3)
Is there a rough road ahead?
There have been countless disagreements with economists who are unsure whether the industry will pick up to be lucrative. 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.” (4)
Fewer rigs
The oil rig count has gone down for a ninth week in 12 according to Baker Hughes’ 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. (5)
According to reports, 100 million barrels per day threshold will be in demand with a heightened global consumption.
“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.”
Where does this lead us?
Capital expenditures have been reduced and fewer projects are being announced due to the low price of oil and gas.
We have expectations that oil prices will show an increase, especially through the triple-digital territory from 2014. 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.
It has been expected that, throughout 2018, new ventures will arise regardless of the fluctuations within the industry.
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References:
(1) https://www.fidelity.co.uk/
(2) https://www2.deloitte.com/content/dam/Deloitte/us/Documents/energy-resources/us-oil-and-gas-outlook-2018.pdf
(3)
(4) https://mozambiqueminingpost.wordpress.com/2017/12/22/global-oil-gas-outlook-prices-to-remain-stable-in-2018/
(5)
