The last few years have illustrated the profound impact that technology now has on the oil & gas and wider energy markets.
Let’s recap. The US has enjoyed (at least when oil prices were high) huge supply growth from the exploitation of shale reserves; rebounding from what was considered ‘terminal decline’ of domestic production to a state of oversupply (at low prices). Further supply increases were seen from offshore development of Brazil, parts of West Africa, Iran and other Middle Eastern states.
The acceleration in energy supply came at a time where, ironically enough, we didn’t actually need the volumes made available to us; as world energy demand grew at just 1%; half the average rate of the preceding 10 years (and that includes a major global recession).
Saudi’s reluctance to surrender to the increasing market dominance of the US meant one thing; and a major drop in energy costs, felt severely throughout the upstream supply chain in the form of 350,000 industry layoffs, volume reduction for oilfield services and mounting pricing pressure from exploration & production companies looking to drastically reduce costs in order to survive.
At the same time as turmoil in the hydrocarbon industries, renewable energy has become a major contributor of the world’s electricity generation capacity with the UK a major player for offshore wind. Particularly important considering the marked move towards cleaner energy sources.
So what does this mean for the future? Most industry commentators agree on several key points. Firstly, energy demand is rising and will continue to do so, just at a slower pace than we are used to. Energy efficiency improvements slow electricity demand growth. Secondly, the impact of such a huge and prolonged drop in oil price will result in slower upward growth in both hydrocarbon pricing and supply.
And gas? Oversupply and underperforming demand has dramatically reduced UK wholesale gas prices; which have been quickly translated into savings for B2B contracts which are typically highly reactive given the competitive nature of tenders.