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In addition, just about every business has implemented huge efficiency programs in order to reduce the overall base costs of the energy sector. They have managed to reduce the cost base, and the US onshore industry has been able to remain cost competitive.
However, all this comes at a price. In general, the industry has not invested in enough new projects to ensure that there is no & nbsp; shortage of future supply. So what is waiting for us? The picture is still cloudy, but here's what I see.
Supply and demand are in equilibrium today, but on the cutting edge, and there should not be much lack of supply to train rising oil prices. Brent has surpassed $ 80 a barrel in early October, and West Texas Intermediate has hit $ 75, and many analysts point to a potential short-term risk for price hikes over the course of this month. quarter and early 2019. Why? the impact US sanctions against Iran are beginning to prevail.
Iran, the third largest producer of OPEC, produced 2.71 million barrels of oil a day in May 2018. This represents nearly 3% of world oil production. A significant portion of this oil will be withdrawn from the market in the fourth quarter of this year.
And we do not know what will replace this Iranian oil. Apart from Saudi Arabia, OPEC has few spare capacities. Why do you think President Donald Trump recently called the King of Saudi Arabia? He would probably like to see Saudi Arabia increase its oil production. It's possible, but it could not happen immediately.
Meanwhile, Russia has increased its & nbsp; oil production to just over 11 million barrels a day, but is that enough? Venezuela, formerly a very important contributor to OPEC, produces only half of what it produced in 2016, while the government of President Francisco Maduro fights against hyperinflation and l & # 39; Climbing of financial chaos. & Nbsp; Can Libya and Nigeria maintain current production levels?
The United States, where the US Energy Information Administration reports oil production for the week ending September 21, 2018, was 11.1 million barrels of oil a day, is often mistakenly called the new swing producer. Yet last week, the number of US rigs targeting oil had dropped from 3 to 863 aircraft, causing some to worry at least about whether the United States can maintain its oil production at its current high level.
Demand, on the other hand, continued to be strong enough overall. However, problems may also arise, given concerns that rising trade tensions between the United States and China could adversely affect demand. If we add all this, many people will look to the fourth quarter of 2018 and the beginning of 2019, as they should face a decline in available capacity and an underfunded market.
That said, oil prices will rise. Is a $ 100 oil possible? May be.
Costs remain low as a result of industry efforts since 2014, prices are rising and the US dollar is strong. These factors should help 2018 be a good year for oil and gas companies, although the results are still not as good for service companies. Why talk about it? As companies are making money again, they are collectively discussing a large number of final investment decisions for 2019. New projects that have not been approved during the period from November 2014 to today can be considered more favorably.
However, there is also a problem. Many people have left the oil and gas sector as a result of the recent economic slowdown. The New York Times reported 163,000 US jobs have been lost since the 2014 summit. Others said nearly 500,000 people have left the oil and gas industry around the world. & Nbsp; Will companies have sufficient capacity and quality of human resources to carry out these new projects? It is not certain.
If that is not enough, there is a lot of talk about the energy transition, which is already under way. However, the transition will not follow the right path. & Nbsp; In fact, it will be a complex and tortuous trail, because without major technological breakthrough, combined natural gas and oil will remain the main source of energy for the next 20 years. years, with a growing share of natural gas becoming the fuel of transition into the future.
This should be good news for the United States, as today North America is the largest gas producer in the world, with Russia and the Middle East ranking second and third, respectively. North America is likely to be the country where future natural gas projects will have the lowest balancing costs in the world; As a result, abundant, low-cost natural gas will fuel a growing share of our global energy future.
Finally, we will have a bumpy ride.
Supply and demand are certainly at the leading edge, and we will see volatility in oil prices. Energy companies and producing countries must & nbsp; replace their oil reserves and maintain their production. It will be difficult to achieve these goals.
Finally, our future energy consumption will likely include a large portion of natural gas, much of which will be produced in North America. Fasten your seat belts.
William "Invoice" Maloney& nbsp;He has been a member of the Energy Advisory Committee of the University of Houston since 2014. He currently sits on Trident Energy's board of directors and is an energy advisor to Warburg Pincus. Bill retired from Statoil in 2015, where he held the position of executive vice president, head of North America's development and production business. Bill attended Syracuse University where he earned a master's degree in geology.
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In addition, just about every business has implemented huge efficiency programs in order to reduce the overall base costs of the energy sector. They have managed to reduce the cost base and the US onshore sector has been able to remain competitive in terms of costs.
However, all this comes at a price. The industry, in general, has not invested in enough new projects to ensure that there will be no future scarcity. So what is waiting for us? The picture is still cloudy, but here's what I see.
Supply and demand are in equilibrium today, but on the cutting edge, and there should not be much lack of supply to train rising oil prices. Brent surpassed $ 80 a barrel in early October, and West Texas Intermediate reached $ 75, and many analysts point to a potential risk of short-term price increases during this quarter and early in 2019. Why? the impact US sanctions against Iran are beginning to prevail.
Iran, the third largest producer of OPEC, produced 2.71 million barrels of oil a day in May 2018, accounting for nearly 3% of world oil production. A significant portion of this oil will be withdrawn from the market in the fourth quarter of this year.
And we do not know what will replace this Iranian oil. Apart from Saudi Arabia, OPEC has few spare capacities. Why do you think President Donald Trump recently called the King of Saudi Arabia? He would probably like to see Saudi Arabia increase its oil production. It's possible, but it could not happen immediately.
Russia, meanwhile, has increased oil production to just over 11 million barrels a day, but is that enough? Venezuela, formerly a very important contributor to OPEC, produces only half of what it produced in 2016, while the government of President Francisco Maduro fights against hyperinflation and l & # 39; Climbing of financial chaos. Can Libya and Nigeria maintain their current levels of production?
The United States, where the US Energy Information Administration reports oil production for the week ending September 21, 2018, was 11.1 million barrels of oil a day, is often mistakenly called the new swing producer. Yet last week, the number of US oil rigs dropping by three to 863 aircraft, prompting some to worry at least about their country's ability to maintain production. of oil at its current high level.
Demand, on the other hand, continued to be strong enough overall. However, there may also be problems, given concerns that escalating trade tensions between the United States and China could adversely affect demand. If we add all this, many people will look towards the fourth quarter of 2018 and the beginning of 2019, as a reduction in available capacity and an under-supplied market could become a reality.
That said, oil prices will rise. Is a $ 100 oil possible? May be.
Costs remain low as a result of industry efforts since 2014, prices are rising and the US dollar is strong. These factors should help 2018 be a good year for oil and gas companies, although the results are still not as good for service companies. Why talk about it? Since companies are still making money, they collectively discuss a large number of final investment decisions for 2019. New projects not approved between November 2014 and today can to be considered more favorably.
However, there is also a problem. Many people have left the oil and gas sector as a result of the recent economic slowdown. The New York Times reported 163,000 American jobs have been lost since the 2014 summit. Others said nearly 500,000 people have left the oil and gas industry worldwide. Will companies have sufficient capacity and quality of human resources to carry out these new projects? It is not certain.
If that is not enough, there is a lot of talk about the energy transition, which is already under way. However, the transition will not follow the right path. In fact, it will be a difficult and tortuous journey because, without major technological breakthrough, combined natural gas and oil will remain the dominant energy sources for the next 20 years, with the share of natural gas increasing in the future. .
This should be good news for the United States, as today North America is the largest gas producer in the world, with Russia and the Middle East ranking second and third, respectively. North America is likely to be the country where future natural gas projects will have the lowest balancing costs in the world; as a result, abundant, low-cost natural gas will fuel a growing share of our global energy future.
Finally, we will have a bumpy ride.
Supply and demand are certainly at the leading edge, and we will see volatility in oil prices. Energy companies and producing countries must replace the oil reserves they have produced and maintain their production. It will be difficult to achieve these goals.
Finally, our future energy consumption will likely include a large portion of natural gas, much of which will be produced in North America. Fasten your seat belts.
William "Bill" Maloney He has been a member of the Energy Advisory Committee of the University of Houston since 2014. He currently sits on Trident Energy's board of directors and is an energy advisor to Warburg Pincus. Bill retired from Statoil in 2015, where he held the position of executive vice president, head of North America's development and production business. Bill attended Syracuse University where he earned a master's degree in geology.
