Turning Point

We’ve reached the end of a perplexing and frustrating year. Looking back over the last twelve months, we’ve seen a growing austerity in the industry as persistently low oil prices have stifled investments and developments.

This year ends with oil prices that continue to force restraint on the industry. Although we saw a bit of a rally in the spring, current oil prices are low – at roughly the same levels as we saw last January.

One strong characteristic of this low point in the cycle is that prices have more to do with over supply than with a drop in demand. Technologies have led to a revolution in developing resources that were not so long ago thought as “unconventional”, which has in turn impacted the market in previously unimagined ways. Talk about “game changing”.

So this cycle is different from a few short years ago.

During the credit crunch, as the world economic engine slowed, energy demand fell. As a result, by the end of 2008, the price of Brent fell from its peak of over $145 in early July by more than $100.

A year later, at the end of 2009 as the economy slowly recovered, Brent was back up to the mid $70s, and prices continued on a slow, rocky rise until the Arab Spring of 2011 pushed them quickly over $100 – and there they remained until supply began to outstrip demand in 2014.

The recovery from the credit crunch was slow. Money for investments was tight or non-existent. And the instability of oil prices throughout 2010 wasn’t much help as the industry contemplated investment decisions.

As we look forward to 2016, we are hopeful that we will soon see a light at the end of the tunnel.

As we prepared to go to press, we attended the annual Autumn Conference here in Oslo. Co-hosted by Statoil, the Norwegian Ministry of Petroleum and the International Energy Agency, the half-day event that marks the release of the IEA’s annual World Energy Outlook report always leaves us with plenty to think about.

The WEO-2015 in itself gives much to think about for the future, including energy supply and demand projections, tackling climate issues, emerging markets hungry for energy, as well as energy and carbon efficiency over the coming decades.

Currently, although China’s economic growth has slowed, the IEA projects India’s growth to increase. The net result is continued growth in demand for energy. During her keynote speech at the Autumn Conference, Norwegian Prime Minister Erna Solberg reminds us, “The world needs more energy. It needs cleaner energy. And it needs reliable energy supplies.”

Likewise, Statoil CEO Eldar Sætre, who provided an industry perspective concerning the current austerity, was cautiously positive: “…there are weak signals that give cause for optimism.”

Mr Sætre’s assertion that the industry has reached a “turning point” is one that encapsulates the current challenges facing the industry. “The companies and countries that show they can successfully tackle these challenges will be the new winners,” Sætre says.

Simplification, standardisation and collaboration are the tools Mr Sætre points to for Statoil, and the industry as a whole, to overcome these challenges.

It’s clear that the industry is changing to meet the challenge. As has been put forward by many this year, the cost of doing business had to be reined in. Those who are taking advantage of the downturn to reassess their priorities and prepare themselves for the coming upturn will be the big winners.

So we are hopeful that a turning point has reached where oil prices begin to rise and stabilise at level that can mesh with a more efficient, well positioned industry.