Top 10 Oil and Gas Business Drivers for 2016.
People have been hammering me like crazy, “Mark, when are you going to do your predictions for 2016?” We’ve even had people reach out to us on our podcast who want to know when it’s going to happen. So we’re going to do it right now. This is our top 10 Oil and Gas Business Drivers for 2016
Number one. Increased interest rates. We think that interest rates are going to go up in 2016 that is going to increase the cost of capital. Now, unfortunately for a lot of the smaller upstream operators in North America they’ve lost a lot of their existing hedging. This increase in interest rates is going to increase the cost or capital, which will actually hurt them even more. Which is unfortunate, but it is going to be one of the business drivers in 2016.
Number two. Operational excellence. So, operational excellence got started in automotive. In the oil and gas industry has dabbled in operational excellence before, in fact we did this big long blog post about operational excellence in oil gas. You can find it here. But going forward upstream and the service companies that service upstream are going to have to improve efficiencies. So they’re going to have to change their culture, the way they think about stuff. Things like continuous improvement which they don’t have imbedded in the entire company, has got to become core to their business. So, number two of the top 10 Oil and Gas Business Drivers for 2016 is operational excellence.
Number three. Talent. And, I’m telling you people think I’m crazy, there’s still a huge shortage of talent in this industry. Yes, there have been layoffs in the upstream in the service companies that touch upstream, but downstream and midstream are hiring like crazy. In fact, there’s not enough bodies out there and one of the things that’s new is there’s a lack of skilled labor. So things like pipe fitters, machinists, welders, there’s not enough of them to meet the need, so that shortage is going to drive business decisions. So, number three is lack of talent.
Number four. Export. And, I should have saw this coming, but I just recently figured this out. You know here in the U.S. we use about 20 million barrels a day, but we don’t actually consume 20 million barrels a day. We use 14, the other 6 are exported as refined goods. And the U.S. has the most robust, efficient, and largest refining capacity in the world. And when I say refinery most people think fuels – jet fuel, diesel, gasoline. No, think of all the petrochemicals, plastics and fertilizers. So, this will become major business driver and this is going to be a bit of a new business is exportation of refined goods from the U.S. So the number four of the top 10 Oil and Gas Business Drivers for 2016 is export.
Crude will get back to $60 a barrel
Number five. Crude prices. Now, we said over a year ago that we thought crude get back to $60 a barrel in April. We still are saying that oil will get back to $60 a barrel, but now we’re thinking it’s more like August. But it will happen in 2016. But it won’t go back to $90 or $100 a barrel, so the industry as a whole have to learn how to work in that $60 to $75 price range which for most of the guys is totally fine, that’s going to be another business driver is the return of $60 a barrel crude oil.
Number six. Technology. This industry is adopting new technology faster than I’ve ever seen it anywhere. Things like big data, analytics, efficiencies, Internet of things which we call the digital oilfield and cyber security. With all these new pipelines and refineries being built there’s more points of entry for the bad guys so all of a sudden cyber security is not something that just the IT managers worry about. The business is now worried about cyber security. And then there is data driven drilling. The upstream guys have to become more efficient in operations, they can’t just spray and pray, so they have to harness the power of big data analytics just to get where they drill. And the whole thing is they want to make sure they stay in that top quartile of production, which they can by using data. So, number six of the top 10 Oil and Gas Business Drivers for 2016, technology.
Number seven. Gas. What else can I say? Natural gas is everywhere. The world has a huge need for natural gas. We’re developing the technologies and infrastructure and place to mush it down to a liquid so we can move it. That’s all the LNG plants are going on. It’s much cleaner much better for the environment. Here and in Europe we’re switching from coal-powered electric plants to natural gas-powered plants. That’s another huge business driver in 2016 is gas.
Then, shifting global markets. There are things going on in the globe that never happened before in oil and gas. You have the Middle East starting to sell oil and gas to Europe, that’s always been Russia’s market. Well, in order for Russia to maintain some money, now, they’re starting to sell stuff to Asia Pacific which they’ve never done that before either. China’s buying crude like crazy and increasing their strategic reserves and they’re also building refineries like crazy. Saudi Aramco is building refineries, they’ve never done that. The Middle East even though they produce a lot of crude historically has imported refined products. So, you’re seeing literally shifts in the global markets and once again it’s a major business driver in 2016.
And, number nine. Downstream. Downstream is where it’s at! For years if you had some product or solution and you want to sell in oil and gas, you’re going after upstream or the service company because they have all the money. That’s gone. For 2016 it’s going to be downstream, they’re making money hand over fist. Think about it. Think about if you made men’s shirts and somebody cut the cost of your raw cotton by 40%, your business would explode and grow, right? Because your raw feed stock got cut by 40%. That’s what’s going on in downstream right now, their raw feed stock is crude and natural gas and it’s not just fuel, so think plastics, petrochemicals, fertilizers, that business is crazy in 2016. So, if your company wants to sell stuff in oil and gas, you need to be looking at downstream. So number nine of the t op 10 Oil and Gas Business Drivers for 2016 is Downstream.
For 2016 we’re going to be in a hydrocarbon abundant world! (click to tweet)
Then finally number ten, for 2016 we’re going to be in a hydrocarbon abundant world. That has not happened in my lifetime. Because of new technologies and new ways to simulate wells, we’re not going to have an absence of hydrocarbons. They’re everywhere. Prices will stay low; access will be easy for a lot of people. We’re going to see the standards of living for a lot of countries go up because they have access to cheap and abundant energy. How wonderful is that?
So, there you go, our top 10 Oil and Gas Business Drivers for 2016. Our predictions are now out there.
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