Comments: Facing the Future
Authors: Donnelly John 
Published: January 2017

Editor's column

Many of the top-level executives attending the SPE Annual Technical Conference and Exhibition (ATCE) in Dubai see the oil and gas industry rising from a market that has bottomed out and is on the rebound.

Saudi Aramco Chief Executive Officer (CEO) Amin H. Nasser said the industry is in “recovery mode” and gradually reaching a supply/demand balance. Likewise, Schlumberger CEO Paal Kibsgaard said the market had reached bottom and was rising and requires more spending to insure against a global supply shortage in a couple of years. Although the previous decade had seemed like a golden age for oil with rising demand in Asia and new sources of supply from North America, the industry proved again that it is a cyclical business, with busts often following booms.

Some believe that cyclicality, despite the pain, is a good thing. Jim Krane, the Wallace S. Wilson Fellow in Energy Studies at Rice University’s Baker Institute for Public Policy, says price cycles are inevitable in the oil and gas business and that has helped the industry remain competitive. “Price swings make companies disciplined and resilient,” Krane wrote last month in a Forbes online blog. “At the same time, they help fossil fuels retain their edge against competing technology. At one time or another, oil and gas have dispatched competitors such as whale oil, candles, steam engines, electric vehicles (in the 1900s), and solar panels. King coal is the latest victim. Nuclear power may be next.”

When oil prices are too high, it encourages the development and use of alternative forms of energy, whether traditional ones such as coal, or new forms such as wind and renewable power. The current downturn has caused hydraulic fracturing techniques to become more efficient and service companies to lower their costs, says Krane, at the same time that oil and gas have become cheaper and more attractive to consumers.

Although use of alternative forms of energy is growing, supported by governments concerned with climate change, most executives in the industry seem confident that fossil fuels will be the dominant energy source for years to come. But with government backing, which often comes with subsidies, the oil and gas industry has entered an era of competition with other energy sources whether prices are high or not.

Topics at ATCE have always been a good barometer of the state of the industry, whether it was the arrival of new environmental regulations in the 1970s to the wave of mergers and acquisitions in the late 1990s. And executives at ATCE this year acknowledged the many challenges currently facing the industry. With panel session topics such as “E&P 2.0: Shaping the Future,” “Transforming the Industry to be Fit at 50,” “Boosting Efficiency in E&P,” and “Collaboration 2.0: Reinventing the E&P Industry,” executives discussed what the industry will need to do going forward to be successful. Both international and national oil companies said they were bent on improving operations, efficiency, and innovation while controlling costs. They are betting that the industry will remain resilient in spite of the inevitable sharp price swings and competition from other energy sources. JPT