Oil and Gas Markets, Companies, and Technology in the 90's and Beyond

Abstract

Summary During the late 1990's and beyond, oil prices will be stagnant while costs increase, competition for markets and capital will be fierce, funds available for exploration and development will be limited, and environmental extremists will keep prospective areas off-limits. Higher taxes will limit growth in oil and gas demand and reapportion energy market shares. And a campaign to brand oil use as an "addiction" that must be cured will gather steam. But opportunities abound, too, even in the U.S. High-quality properties are available throughout the U.S., independents can find and develop reserves cheaper than the majors, and new tools are available to reduce risks both in the field and in the market. Gas prices are firming and natural gas is often labeled the "fuel of the future." To succeed in the petroleum industry of the 1990's, all companies must accept change, be creative, and take initiative. To prosper, oil and gas producers and refiners and those who supply and serve the industry must face the new realities of the market. They cannot mark time until the return of 4,000 active rigs and $40/bbl oil. Those days are never coming back. Never. Introduction To understand the wrenching change that has been sweeping through the international petroleum industry, it is necessary to look first at the fundamentals of the worldwide petroleum market. Those fundamentals - oil and gas supply and demand now and in the next 10 years - are the key to understanding what companies are doing now and to assessing the future role of technology in petroleum exploration and development. A look at the market outlook over the rest of the 1990's also brings a needed measure of reality to strategic planning. An objective look at petroleum-market fundamentals makes it clear that the old days of $40/bbl oil and 4,000 active rigs are never coming back. Never. Accepting that fact is the first step in planning a successful future. Making that plan work will require more innovation, more creativity, and more adaptability than ever before. Markets In the U.S. and elsewhere, the most important characteristic of oil and gas markets in the short and long term is plentiful supply. Proven recoverable world oil reserves of 1 trillion bbl represent a 45-year supply at current production rates. Reserves jumped 50% during the decade of the 1980's in spite of the consumption of more than 200 billion bbl. Including oil from shale, tar sands, enhanced recovery, and undiscovered reserves, one estimate puts the total world oil resource at 9 trillion bbl. Natural gas is even more plentiful. Proven world reserves of natural gas represent more than 60 years' supply. Demand will grow, of course. But a realization that supply will be adequate must be the foundation of any strategic plan. That does not mean oil supply and price will not fluctuate, sometimes dramatically, in the short term. It has been said that politics determines oil prices in the short term and economics determines prices in the long term. Another way to describe the world oil market is to make the distinction between productive capacity and reserves. Productive capacity influences prices in the short term; reserves influence prices in the long term. Increasingly, however, two other forces are acting on world petroleum markets: environmental pressures and taxes. As discussed later, these are intertwined in some cases.