Comments: What Will the New Year Hold?
- John Donnelly (JPT Editor)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- January 2018
- Document Type
- Journal Paper
- 12 - 12
- 2018. Society of Petroleum Engineers
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- 57 since 2007
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Editor's columnIn this issue, SPE’s technical directors evaluate the current state of the upstream oil and gas industry and offer their outlook for what will drive the sector in 2018. After several years of low oil prices and heavy restructuring, it is no surprise that cost containment and adding value are at the top of the agenda, from drilling to completions.
Parts of the industry are still adjusting to change. Shifting demographics, increased automation and digitization, and the ever-increasing flow of data will continue to have an impact on the industry for the foreseeable future. In general, analysts who study the industry predict that 2018 will be a year of stability and continued gradual recovery: oil prices should hold steady or slightly rise, and OPEC and non-OPEC producers will chart their course forward as the supply overhang gradually subsides, leading to a market in better balance than it has been in 3-4 years. The big picture will focus on OPEC and other large producers’ adherence to production cuts, the continued rise in shale output in the US, and whether global demand can whittle away at the oil surplus.
Deloitte sums up the past year and how it will impact the new one in its 2018 Outlook On Oil and Gas. Among its observations is the surprise of the US coming into its own as an energy exporter. When the US oil export ban was lifted in January 2016, it was thought that it would have little effect on the global market. But the US has become a regular exporter of crude oil, especially unconventional, to as far away as Asia, as well as a force in liquefied natural gas and refined products. If the trend continues, the US will have gone from a heavy net oil importer to a truly global player in the market, especially as unconventional production continues to climb, in just a few years. That also has implications for national security and global geopolitics.
Deloitte points out that the question coming into 2017 was whether cost reductions in unconventional production would be sustainable. “The evidence seems to tell us they are, with break-even costs across the major US shale plays still 30-50% below the levels of early 2015,” its report says. The downside is that, although many producers are not only surviving but doing well, the oilfield services industry is still reeling “and further consolidation may be in the cards.”
OPEC’s extensions of cuts along with major producers such as Russia has been key to stabilizing prices. But with non-OPEC production climbing, the market still needs a significant demand boost to solidify prices. OPEC and the other producers first announced their cuts in late 2016, and the adherence to them has been stellar. The cuts were extended another 6 months and, in late November, another 9 months to the end of 2018. How long these producers, especially Russia, are willing to curtail output will have a major influence on oil prices in the coming year.
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