The light is at the end of the tunnel, but how long is it?

Still here?

If you’ve been in the oil and gas business for more than a few years, and you’re still reading this then we feel for you. This recent crash has been stressful for us all. Industry crashes destroy pensions, families and companies. Many of those who survive and stay in work or keep their company afloat will feel like they’ve aged 10 years.

If we knew how long the crash would last, then we could have planned. A one year crash might be a nice holiday, knowing that you’ve got a good job to come back to. A two year crash might involve some financial restructuring and belt tightening. A four year crash might have made a career change the best option.

Unfortunately, when we look to the experts, and the media, bullish and bearish claims and pitches are offered in equal measure. Predictions of timescale are more like sales pitches based on ulterior motives of company interests.

Is this time different?

Historically, oil and gas downturns have often only lasted for around a year (2008) although some have lasted a lot longer (1986). In 2015, there was no reason to think that this one would be any different to the more common brief setbacks. We now understand the dynamics of the (media fascination of) OPEC price control effectiveness. (Which was futile in the face of the US Shale boom, a historic expansion).

We’re not quite seeing things in the rear view mirror just yet, but a few things are clear:

1. Depletion rates across tight/shale oil fields show a similar dynamic. It’s hard to see this as being the miracle that it has been touted as at times.
2. The current numbers show cause for concern. For example, do all of the DUC wells contain the reserves that have been booked for accounting purposes? What percentage of stated BOE is oil and what is gas?
3. Investment in deep sea and large conventional exploration has crashed, for a sustained period.
4. Alternative energy, and fuel has its own set of bottlenecks and issues such as the supply/demand dynamic of lithium, and the current network and storage constraints.
5. The developing world is still developing, and demand for oil and gas is likely to rise.

There are other points I could mention, but the message is clear, these factors are unlikely to change in the next 1-5 years.

We can all debate when peak oil demand might occur, or when hydrogen fuel cells or cold fusion might enter into the mix…

… But for our own businesses and livelihoods, a supply crunch in around 2020 seems like a certainty. It might happen in 2018, 2019 is more likely, but from a planning perspective, surely we’re in a better position now, than for the past 3 years…

“If you’re going through hell, keep going”

– Winston Churchill

Most individuals, families and businesses can plan if there is a semblance of stability, and compelling reasons for optimism.

The next supply crunch

At drillers.com we feel that this is the situation we face. Even if oil crashes again to $20 in the next year, something that is quite possible, the supply crunch is ‘in the post’.

Being at the bottom/end of a crash still standing means that we’re survivors. We will have already cut costs, and adjusted the sails. Now we can plan for the future, with extra time and a hungry focus while we wait for market forces to surprise half of the talking heads and book talking predictors.

You might be chuckling to yourself, thinking that I’m being hypocritical in chiding predictors, while calling a bottom and a supply crunch in 2020…

If a new invention was created tomorrow, that really meant the end of oil and gas then so be it. If it were cleaner and cheaper, then I’ll be joining that industry. I’m ready to be wrong, ready to be flexible and nimble as I survive.