There’s no easy road for energy
The energy sector is stuck in a potentially prolonged purgatory of low oil prices and itchy fingers looking to pump crude as soon as it’s even a little profitable, energy experts and executives said Monday.
The grim picture painted at the first day of the massive, but shrinking, Offshore Technology Conference at Houston’s NRG Park includes the conundrum of the “chicken and the egg,” said Atul Arya, senior vice president for IHS, a research and consulting firm.
As soon as the price for the U.S. benchmark increases to $50 a barrel or so – the price settled Monday at $44.78 – producers begin drawing oil from their drilled-but-uncompleted wells, he said. The result: Increased production drives oil prices back down.
“The industry is at a bit of a standstill,” Arya said. “I think you’ll see the price go down and up.”
The deep-water industry “faces severe challenges,” he said, because of the long lead times and large costs to develop most offshore projects. Making the situation even more challenging is the buildup in global inventories, which have grown by 1 billion barrels since 2014, when prices recently peaked.
“There’s so much oil floating around, it’s just unbelievable,” Arya said, citing the struggles of both independent producers and government-controlled international companies. “Everybody is underwater.”
This combination of steady production, increasing supplies and falling prices has battered the industry for much of the past two years. The industry has tried to break out of the cycle described by Arya, but with many companies needing to service loans and stay in business, or governments to fund budgets, rising prices inevitably lead to more pumping – and another dive in prices.
That’s what happened last summer, when prices climbed about $60 a barrel in June, only to slide below $40 by August.
It’s really best for the industry for oil prices to stay below $45 a barrel to drive production down enough for supply and demand to rebalance, Arya said. Rising prices now will only extend the downturn, he added.
Global exploration and production spending shrunk from $4.41 billion a year in 2014 to $2.46 billion for 2016, with more than 60 percent of the reductions occurring in North America. Investment could fall further before the year is out, analysts said.
BP has made its share of cuts and the British oil giant was one of the first major companies to predict a “lower for longer” oil price environment.
But Bernard Looney, BP’s upstream chief executive, told reporters at the OTC that he doesn’t see “lower forever.” The company is moving forward to place several long-term, global projects in production by the end of 2020.
BP is positioned to break even in mid-2017 with oil prices in the $50-$55 per barrel range, he said.
BP said in January it would cut 4,000 upstream jobs this year, as well as another 3,000 downstream positions by the end of 2017. BP in March indicated to the Texas Workforce Commission it was axing 500 jobs in Harris County.
With the argument that technology is more important than ever when times are tough, BP is relying more on automation and data analysis to produce oil and gas.
BP recently began using automated “crawlers” that go up and down the risers on offshore rigs for inspections, replacing the need for more teams of people “dangling off the side of a facility on ropes,” he said.
Looney said BP is working with General Electric on systems that feed predictive data analysis in real time to drilling rigs while they’re operating. The systems can see problems in advance and react accordingly.