It’s no secret that the current state of the oil and gas industry is one of doom and gloom. And before a solution can be found, the industry must first admit there is a problem.
“I think what we’re seeing is really a confluence of two major factors. The first is that costs have really gotten out of control in our industry, especially in the last five years, and you couple that with an oil price that has fallen by over 50%, which has added urgency to the situation,” said Bernard Looney, COO, Production, BP, at the opening plenary at this year’s SPE ATCE in Houston.
It is clear that cost-cutting and increased efficiency are a necessity for short-term survival, and realistic expectations must be set. For the panel at the event entitled, “2040: the Journey and the Destination – Diverse Perspectives,” the message was clear: the industry is in the tough spot but companies are finding ways to cope; oil and gas will continue to be a relevant industry; we are in an expected cycle, so hold on.
“We should not look to demand to provide salvation,” said Jorge Leis, managing director, Bain and Co. “The combination of tentative growth in the US, longer stagnation in Europe, and deceleration of demand in Asia, in particular China, tells me we really should not hold out hope for correcting the supply and demand imbalance by hoping we can grow our way out of is on the demand side.”
However, industry cannot neglect its long-term plans and the importance of investment, both financial and human.
“Many companies, ourselves included, have committed to continuing to maintain investment and improvement of graduate engineers and graduate geoscientists, things that nearly a decade ago we would have stopped,” Looney said.
Nevertheless, in order to bring in investment in 2017 or at least by 2018, there must be a new price escalation, said Jarand Rystad, CEO, Rystad Energy.
With recent increase popularity of renewables, some members of the audience were concerned about the relevance of oil and gas in the future energy mix.
Despite trends showing renewables growing more quickly than expected, growth needs to be considered relative to size, and current trends cannot be forecasted long term into the future.
“You can grow quickly on small numbers, costs come down quickly, but these things start to bump into the challenges of scale,” said Scott W. Tinker, Director of the Bureau of Economic Geology, State Geologist of Texas; Director Advanced Energy Consortium. As renewables begin to take on more of the global energy mix, they will have to start competing for resources.
“Renewables will have to obey the fundamentals of economics,” Leis said.
With layoffs continuing and the current low oil prices, the concern of the many students and displaced professionals in the audience are justified. However, the panelists maintain that the industry is strong.
“We are an incredibly adaptive industry. We will get through this, but we do need to take action,” Looney said.
“I continue to believe that energy is the greatest industry on the planet. It underpins everything else, it is vital for economic growth and prosperity, it’s vital to lift the world out of poverty,” Tinker said. “I think it’s the place for young people to make a remarkable difference in the world by having jobs in an industry that matters.”
Looney concluded: “I would encourage people to take the long view, which is hard in the short-term, but as predictable as it is that we will have downturns in oil prices, it is as predictable that we will have upturns. That is the nature of our business, and that is what will happen.”
Image: Panelists (L-R) Eithne Treanor, Jorge Leis, Bernard Looney at the opening general Session during the 2015 SPE Annual Technical Conference and Exhibition (ATCE). Photo: SPE/Phil McCarten 2015.
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