Hey folks, let’s learn something new about the Oil and Gas industry. All right. It’s that time? It’s the time of the year for our Oil and Gas predictions for 2021. Now let me preface this by saying this year 2020 has been insane, even though we’ve been doing these predictions for six straight years, I don’t know how much faith I’d ask you to have on my predictions for next year. But it’s our best guess based upon the data and experience that we have. But before we get into it, let’s talk about a couple of things.
Number one, there’s a lot of people out there saying that the oil and gas industry is dead in the next five years. It’ll disappear. Completely wrong, it’ll never happen. A hydrocarbon is the most valuable molecule to mankind’s existence. It will never disappear. Yes, we’ve had a decline in demand for 2020, but that was because of the COVID-19 pandemic and lockdown.
Peak Oil Not Happening
You will hear a lot of people talk about peak oil demand is happening this year. Although we believe in peak oil demand, a hundred percent, we think peak oil demand is at least a hundred years out, if not 150 or 200 years out. And whenever we do get there, it’s not like we’re going to go to peak oil demand and it’s going to drop off. We’re going to peak oil demand. It’s just a level off for as long as mankind is around because of the value of the molecule.
The other thing is with our newly elected administration here in the US, you here a lot of people also talk about how they’re very anti oil and gas, which may be true. But the fact of the matter is there’s not much they can do right now. The most they could do with some executive actions is limit drilling on federal land. People, that’s only 5% of the drillable land in the US. Now two years from now, when we have the midterm elections. If they capture more seats in the houses, then maybe they can do more. But the truth is if you’re a politician, regardless of you’re on the right or left, you don’t want to lose the votes in Oklahoma, North Dakota, Louisiana and Texas, right? So there may be a lot of talk, a lot of rattling of sabers, but our industry is here to stay forever. So don’t worry about that.
$60 a barrel for WTI
The biggest thing for industry right now is not the low crude prices. It’s the slow and decline in demand for refined products. So once the vaccine gets released, what should be happening by the time you see this life will start getting back to normal. People will start flying, more people start driving more, I have high hopes for the holiday season that a whole bunch of people will shop online, which is just a bigger demand for transport fuels.All of which will drive the global demand up, which is what we need to have.
I still firmly believe by the second quarter of 2021, we’re back to $60 a barrel for WTI. And natural gas will follow suit as well, pay real close attention to NGL’s. I think they’re going to go through the roof in 2021. But anyway, with all that stuff said, let’s go ahead and get to our Oil and Gas predictions for 2021.
Number 1 Oil and Gas predictions for 2021 Loss of Downstream Dominance
Number one, refinery shutdowns. Because of the lack of demand for refined goods, you’re seeing refineries being shut down here in the US. Now the US has always led the world in refined products and we’ve done it for a couple of reasons. Probably the biggest one is our ability to refine very complex, heavy crudes, which most of the world can’t do. We get a great yield from it, but it’s a very big technology challenge. And we’re one of the few countries in the world can do it. Well, you’re seeing refineries shut down because there’s no demand for their products. Refineries were never designed to be shut down.. There’s things called a turnaround where you take a unit of the refinery offline to do planned maintenance or repair. But the refineries itself has never meant to be mothballed. Well, once they’re mothballed, couple of things can happen. Another company can come buy them and start them back up. But if you could spend that much money, wouldn’t you rather build a new refinery outside the US where you don’t have the political financial risk. And that’s what we think’s going to happen. As these refineries are shut down. You’re going to see new refinery stood up in the Middle East and Asia Pacific, that will capture a lot of that market. And unfortunately, our number one Oil and Gas predictions for 2021 is that US is going to lose its downstream dominance.
Number 2 Consolidation of Tech
Number two, consolidation. And I don’t mean consolidation of oilfield service companies, are the operators or anything really around the oil and gas industry. I mean consolidation in the large tech providers, the tech providers see the revenue they can generate from oil and gas. They’ve proven the value of the cloud to our industry. And now they’re going through their own mergers and acquisitions that needs to shake out. That’s going to take a couple of years, but the good thing is, as these acquisitions are happening with the big tech providers, our industry, is going to get better services faster and cheaper, which is just good for everybody, including the tech providers that are left. So number two Oil and Gas predictions for 2021 is consolidation in the tech space in oil and gas.
Number 3 Generation Z
Number three, move over millennials generation Z is in the house. 2021 here and in Europe, about 31, 32% of the workforce will be generation Z. Now generation Z is different than the millennial generation. Generation Z is actually much more like my generation, generation X. They’re not as collaborative they’re much more competitive, and they’re much more oriented towards safety, especial financial safety. So the millennial generation wanted new experiences, wanted to make sure that they’re doing good for themselves, their family, the planet, the local communities, and they weren’t real worried about the paycheck as long as they made good money. At the same time, they also love to work together. This new generation Z is much more competitive and they’re also much more worried, they place much more value in the financial security of a good paycheck. And they grew up with their parents, being technical nomads. And so they have totally grown up in the technology world. They’ve watched their parents get swayed by social media. You cannot fool a generation Z with social media, which is good for us. It’s actually good for everybody. And I’m telling you if I was running an oilfield service company right now, or any other type of company that had a salesforce that sold to oil and gas. I would hire as many generation Z’s as I can, because that competitive that they want and the security they get in big paychecks is perfect for a sales organization. So, I’m welcoming you generation Z. Come on in, we waited for you for a long time. Glad to see you here. It’s going to be really awesome to have you as part of the team.
Number 4 Rebirth of the Canadian Oil and Gas Industry
Number four, the rebirth of the Canadian oil and gas industry. Love my Canadian brothers and sisters. But unfortunately, because of politics, the Canadian oil and gas industry was literally on its last breath. They have the resources, they have the talent, they have the infrastructure, but politics has just about killed the Canadian oil and gas industry. Well, remember how I told you that perception may raise prices in the industry because of our newly elected administration and also some of the stuff they may be able to do in a couple of years. Well, if you raise the cost of US hydrocarbons, and I’m a refiner and I’m operating on low margins, I’m going to buy the cheapest heavy, complex crude I can buy. Guess where it’s going to come from? Canada. Right? So it’s some bizarre, strange twist of fate, the US election, I think, and the perception that the administration is going to push is going to be not a boom, but a big plus the Canadian oil and gas industry, the Canadian oil and gas industry will start selling more and more hydrocarbons to the US. Unfortunately, those tax dollars and those jobs, which should have stayed here in the US will go to Canada.
But number four, for our Oil and Gas predictions for 2021 is the rebirth of Canadian oil and gas industry.
Number 5 Remote Worker
Number five, remote worker, we’ve always had remote workers, but until 2020, we didn’t take it that seriously. Up until the end of 2019, if I had to do factory assurance testing for something, a blowout preventer or whatever, I’d fly my team around the world. Usually a third party, independent inspector around the world and the manufacturers people. We’d all meet and we’d go through that FAT process. Well now in 2020, because of the lockdown we’ve learned, not only can we do that remotely, but at the same time, it’s much safer, much more efficient. You’re not sending people in confined spaces. People aren’t jumping on airplanes, but that remote worker is going to drive another layer of technology, which is another layer profit for the tech companies. So the remote worker needs different hardware, right? Different software, different processes, a different cybersecurity and all that is there. It just has to be put together the right package for the remote workers. So number five, Oil and Gas predictions for 2021 is the rise of remote workers in oil and gas.
Number 6 Oil and Gas predictions for 2021 ESG
Number six ESG, we believe in this so much that we have an ESG show that is launched by the time you’re watching this right. And ESG stands for environmental social governance. It’s sort of what the old CSR was with an added layer of that governance. And I actually think it’s a fantastic thing. So as an industry, we’ve always cared about the environment. We’ve always cared about the local communities we operate in. But after that, you know, where do we start looking at how we run our companies? Where do we look at how much we pay our people? What do we do when there’s hard times? How do we figure out who do we lay off, and who we don’t? So I think this ESG component is a wonderful thing. It’s just another layer of making sure that we’re doing right by everybody. And if you’re a company and you don’t have a focus on ESG, not only are you going to left behind, you going to disappear because ESG is driving your ability to recruit, retain talent shareholder value if you’re a public company, even your ability to operate. So the companies that get it right are going to blossom. And the ones that don’t unfortunately, are going to disappear.
Number 7 Hydrogen
Then number seven, hydrogen. Yeah, I know hydrogen has been around forever. It’s what makes the sun tick. And hydrogen as a fuel is something we’ve played around with for a long time. Think of any space mission, electricity for the spacecraft most probably came from a hydrogen fuel cell. So we’ve done this for a long time. However, have you ever thought about the word hydrocarbons? What does the hydro mean? Hydrogen? So between 10 and say 15% of hydrocarbons is hydrogen. And so hydrogen is actually very unique, but in 2021, we think it has a couple of things going for it that are going to blossom. Number one is the problem with solar and wind is how do you store excess electricity? Hydrogen is a great way to do that. So what you do when you have excess electricity from solar wind is you electrolysis seawater. You produced hydrogen, you store it and you can use it for fuel later. Problem solved. Number two, you can run hydrogen in an internal combustion engine. Once again, problem solved. Number three, it’s a great in a fuel cell for electric vehicles. So instead of a battery pack, you have a hydrogen fuel cell and your exhaust is clean water, but don’t think we have hydrogen power vehicles in the next 10 or 15 years. The critical piece is the infrastructure. Right now it’s relatively easy for me to teach you as a new driver, how to fill your car up with gasoline or diesel. Filling your car with hydrogen is going to be a totally different story. It’s unbelievably cold, under high pressure, takes special connections. We’re not going to have hydrogen infrastructure for automobiles until the robotics get to the place where the gas station fills your car for itself. And that’s at least a decade away. But the other thing about hydrogen is that it’s easy to move. It’s almost free in some cases. So you can take hydrogen mix it with natural gas in a natural gas pipeline. Now you can’t have too much hydrogen, because it damages the pipeline, but you can mix it with natural gas, move that natural gas anywhere in the world, and then separate the hydrogen at the end. And you basically have moved that hydrogen for free. So we think another Oil and Gas predictions for 2021 is hydrogen.
Number 8 Loss of the Middleman
Then number eight, loss of the middleman. If you’re an operator and you need a pump or bolt or a flange or whatever, you buy it from your service company, the service company buys it from a distributor and distributor buys it from a manufacturer. It’s how it’s been for a hundred years. Well, because the technology, the need for that middleman has disappeared. That middleman served a vital purpose for a very long time. They did inventory, quality control and large volume pricing. They were your last line of defense. If you needed something overnight, they had it. They would hot shot it to you. But now with the decreasing cost of technology like storage, connectivity, RFID tags, the role of that middleman is no longer as important. And we think in 2021, the middleman is going to start disappearing. If you think about what Sam Walton did with Walmart, that’s what he did. He realized that there was a middleman between the manufacturer of the retail products and the retail store, and he removed it and just bought the product directly from the manufacturer. That’s what we think’s going to happen in oil and gas. So if you’re a middleman, if you’re a distributor right now, you need to start looking at other sources of revenue.
Number 9 Trace Hydrocarbons From Reservoir to Consumer
Then number nine, the ability to trace a hydrocarbon molecule from the moment it came out of the reservoir to the consumer took ownership of it. Technology has been there for a while, but it’s gotten cheaper and cheaper and cheaper. And now with this concern around ESG things like environmentally properly sourced hydrocarbons are becoming a thing. It’s already starting to become a thing. In 2021, we think it’s going to be much, much bigger. So as a responsible business owner, as a responsible human on the planet, I want to make sure the hydrocarbons that I buy to fuel my vehicles are harvested in a responsible way. I can’t do that this year in 2020. I can’t tell you where that molecule of hydrocarbon came from. But very soon I will be able to. And once we can tell where the molecules come from, we can trace them. I, along with a bunch of other people will happily pay a little bit more at the pump or a little bit more for soccer balls, a little bit more for car tires. If I know those molecules have been harvested responsibly, and at the same time, it’s going to allow us to eliminate the black market for hydrocarbons. Two things our industry really needs. So number nine, the ability to trace hydrocarbons from reservoir to consumer is going to be a major driver in 2021.
Number 10 Talent
And then finally, talent. If you listen to me, you know, I’ve been talking about this lack of talent for over a decade. Well, it’s happening. Here in the US and in Europe, young people don’t want to go to school to come work in the oil and gas industry. However, there’s other parts of the world where that bias isn’t there. You look at the middle East Africa, Russia, they all love going to school to come work in the oil and gas industry. Well, we’re an industry that relies on engineers and project managers. And pretty soon we’re not going to be able to hire engineers and project managers that come from Western world, from the US and from Europe. And so we’re going to be forced to hire people from other countries like Russia, India, the middle East, and even Australia, nothing against other countries, no hate mail people. I’m just talking about the trends that we’re seeing. Well, that tells me that starting in 2021, that the culture differences between say Russia or the middle East or Australia are going to start influencing our industry more and more. And in about 10 years we think the culture is going to change dramatically because there’s less and less Western influence in the oil and gas culture. Once again, it’s not a good thing. It’s not a bad thing. It’s just a change that we’re aware of. So there you go. There’s our top 10 Oil and Gas predictions for 2021. Hopefully it was helpful to you. If it was, do me a favor, share this. Also if you don’t know, we have the top podcasts in the world in oil and gas, you might want to go give a listen or two. So folks, I hope this helped. We will see you next time.