The turn of the year means boardroom leaders are planning – as well as playing soothsayer – for what’s next in 2020 and beyond.
Over the past 12 months the oil price has been relatively stable. However, supply has again been strong and by the close of 2019, there is excess to demand building. The industry has replaced the lost barrels from Venezuela, Libya and Iran with supply from the US, Iraq, Norway, the UAE and Guyana.
Although this could cause a messy first half of 2020, restraint shown by Opec, led by Saudi’s interest in protecting its recent IPO evaluation, will allow balanced pricing well into the third or fourth quarter. So, overall, 2020 should be another relatively placid year.
In recent history, the “survival of the fittest” mentality has delayed the larger, long-term projects for smaller, shorter cycle activity. The UK sector has suffered from this as many operators continued to hold back on capital to examine their cost base and shed expense as well as continue to push deep cuts on to their suppliers. Thankfully, this trend started to ease in 2018.
Last year saw a continued marked shift to strengthen relationships between operators and their suppliers in the UK and somewhat globally, which has shown promising results. Collaboration with the oilfield service sector is imperative. It is what drives innovation and efficiency. Wise operators realise that you cannot live and thrive in the pond if you destroy the ecosystem that feeds it.
As a mid-tier, innovative, homegrown supplier, we have noted a return to being brought into conversations earlier, collaborating more closely and being allowed to focus on the real issues at hand. The more UK operators invest in local companies that specialise in key problems, the more they will invest in solving the problems at hand.
Climate change action
In 2019, much talk focused around net zero emissions. This has caused a lot of head scratching, indecision and drama across the international energy sector. In some parts of the globe, the oil industry has been vilified in the same bracket as “big tobacco”.
We need to reflect and re-educate ourselves on what oil and gas companies bring to the world and encourage a willingness to move towards cleaner and more efficient energy.
Companies are striving to foster, finance and forge all kinds of alternative fuels for a safer, greener world. Whether they do this out of market survival or boosting the bottom line, who cares? It’s encouraging to see the industry becoming a catalyst to counter the impact of climate change.
The ability to execute it on a global scale trails significantly behind the idea or political rhetoric. There’s no doubt fossil fuels will be needed for at least another 50 years to balance ever-growing demand with even steeper energy decline curves.
Does that mean we should not strive for cleaner, more sustainable alternatives? Absolutely not.
The Scottish and UK governments’ ambition to target zero net emissions by 2045 and 2050 is admirable and is the right thing to do.
However, the answer will not be to target the necessary North Sea industry and crush it under regulations.
In fact, if you build a programme that encourages the sector to capitalise on achieving this target, we will be the best-positioned and most prominent force to make it happen and that will surely expand and be embraced globally.
Big Oil is not the problem, it’s the solution.
Brad Baker is CEO of Tendeka