As the oil and gas industry strengthens with eyes on rising commodity prices, costs and emerging technologies, there are certain trends developing for 2018 that the industry should also keep in mind.
Will 2018 be the year for the digital revolution takeoff, transforming talk into lucrative plans to help drive growth? Will natural gas make strides toward becoming the dominant fuel of the future, replacing oil? How will U.S. shale perform with still struggling oilfield service companies and equipment manufacturers looking at costs? Will technology advancements be a savior?
Deloitte partner John England delved into these topics and more during a recent webcast that highlighted what could be in store for the oil and gas sector in 2018 for the U.S. and the industry as a whole. At least one thing is a certainty—as it has been in the past—OPEC remains relevant despite the rise of U.S. shale oil. It would be dangerous to think otherwise, England said.
“OPEC is a very strong group. It still has 30 million-ish barrels of the world market. They’re a big player and will continue to have a big influence on the market in years to come,” he said.
England pointed out how OPEC production cuts, which were extended through year-end 2018, have helped rebalance the market with compliance rising from 84% in January 2017 to 104% in October 2017. OPEC and a Russia-led non-OPEC pact agreed to cut production by about 1.8 million barrels per day in an effort to boost oil prices. Oil prices—aided by rising global demand—have steadily risen from the low $40s/bbl in 2016 to about $64/bbl.
“I wouldn’t downplay the role of OPEC, but the U.S. has a stronger hand in the global oil market than it has in the past,” England said. He cited changes in terms of processes and technologies that have benefitted U.S. shale and tight oil plays, enabling breakevens to fall tremendously in the last few years.
U.S. shale breakevens now average less than $50/bbl, compared to about $68/bbl in early 2015, according to Deloitte.
“The most stable strategy one can pursue is to be a low-cost producer,” England said. However, “it’s important to be realistic.” There is a possibility that costs will rise in 2018 and companies could face some inflationary pressures this year, he said.
Technology advances could continue to help bring down costs with companies expected to put more emphasis on digital solutions.
“People are becoming much clearer in terms of how digital technologies can help their business,” England said. This is a shift from 2017 when there was much talk about digital enablement but not necessarily a thorough understanding of what it might mean for business, which is changing as companies experiment with pilots and proof of concepts for certain technologies.
Companies are using digital technologies to enhance field development, make the supply chain more efficient and improve asset maintenance not just in upstream but also midstream, downstream and in the back office with robotic process automation, England said. He added “digital is here and it’s here to stay. It’s going to be a big theme for all of us in the days to come.”
According to Deloitte, the prize is sizeable for global oil and gas companies with the potential to save millions from their combined $2.4 trillion in operating costs.
Another trend emerging in 2018 is the growth of natural gas, which England and others believe will become the dominant fuel of the future especially as natural gas production costs fall and consumption rises.
“We’ve seen a lot more natural gas consumption in the U.S. as a lot of coal-fired generation has switched over to natural gas,” England said. “We expect to continue to see that trend” which has benefits for the environment as well as the United States’ ability to grow as an LNG exporter with infrastructure in place.
However, questions remain globally, considering he said some other parts of the world are not as equipped with natural gas storage pipelines and transmission infrastructure. “That infrastructure is really necessary for it to grow like in the U.S. But overall we’re quite bullish on natural gas and where we’ll grow in the future, especially as LNG continues to grow in the global market,” England said.
Deloitte also expects the U.S. to continue toward growth as an LNG exporter, already having strong refined product exports with gains in natural gas exports, particularly into Mexico.
“On the crude export side coming out of the shale and tight oil plays, we’re seeing a tremendous amount of very high-quality crude which has a lot of attractiveness on a global market,” England said. “For the U.S. it helps our position. That’s a real positive.”
Velda Addison can be reached at firstname.lastname@example.org.