2017 Outlook on the Oil and Gas industry
State of the industry and the long-term impacts
An outlook to the long-term impacts of the oil and gas downturn, the reasons to be positive for an oil and gas recovery, and the effects on the industry in a number of areas including capital allocation and people.
The state of the industry according to John England, US Oil & Gas leader, Deloitte LLP.
The impact of the extended oil price downturn will likely have long-term effects on the industry in a number of areas including capital allocation and people:
The survival mentality in the oil and gas industry seems to have resulted in a mindset shift toward shorter-cycle projects. $620 billion of projects through 2020 are estimated to have been deferred or canceled as a result of the downturn, and the appetite for long-term and complex major capital projects has waned, despite a few notable exceptions. While this trend certainly seems to lower the risk of individual companies in the industry, it may pose some broader questions regarding energy supply and security. Where will supply come from in 2020 and beyond? Are there enough short-cycle projects to fill the supply gap? Will the capital markets support the long time horizons acquired to develop more complex projects?
Prior to June 2014, one of the common challenges facing the industry was talent. Would the industry find the skilled workforce needed to fulfill the potential of shale revolution as well as the growth in deepwater and related mainstream projects? In the wake of massive layoffs, these concerns seem very distant. However, the question for the industry is: Will the people come back to the industry when the recovery begins in force?
John England's take on 2017
While I called 2016 the “year of tough decisions,” I’d characterize 2017 as “the slow road back.” Supply and demand balances are still slow to return to a sustained equilibrium, although the OPEC decision to cut production should help accelerate the drawdown of global oil inventories, even if OPEC countries do not completely deliver on their announced production cuts.
Overall, there are reasons to be positive and reasons to not be positive (I prefer this to “negative”) that largely offset each other. Thus, my view that we are on a slow path to recovery.
Download the outlook for further insight on long-term impacts of the oil and gas downturn.