Plunging prices will force the offshore industry to make the most out of limited resources.
The offshore industry has been under a black cloud since the end of 2014, with the oil price crash bringing a seemingly interminable period of doom and gloom. No one can blame operators for the resulting project cancellations and exorbitant cost-cutting measures undertaken in recent months.
But drivers and manufacturers revelling in lower petrol prices shouldn’t be the only ones celebrating. The recent oil crash is one of the best things to happen to the offshore industry in years, and will be heralded as an event that changed the offshore system. By forcing the industry to hold a mirror to itself and examine how to make the most of what it has with the remaining limited resources, this price drop has the potential to bring about a massive change for the better.
This change is something that needs to happen. The industry has come to be too dependent on the promise of consistently high prices and become set in its ways. There is a disconnect in the operator-contractor relationship that is the result of a hesitation -— and refusal — to change the status quo.
Launching a company like io to provide an end-to-end service in the offshore industry made 100 percent sense when we began discussions to form the company in early 2014. And now, looking at the oil price, it makes 100 percent sense.
This is not the first time we’ve seen a steep decline in oil prices, and it will not be the last. It is also not the first time I’ve worked in a financial environment this volatile. In fact, I have worked in much worse, starting a business in 2000 when the oil price was $10 a barrel. At this time, the industry was beginning to go into deepwater. The situation today is similar, with deepwater projects still at the forefront of exploration moving further afield.
It is no secret that the offshore market needs to change its ways. On the day io launched, the front page of the Financial Times featured a quote from Michele della Vigna, the head of European energy research at Goldman Sachs asserting that “[T]he industry simply has to completely reset…” As billions of dollars’ worth of projects have been scrapped across the board, this sentiment has been echoed many times since by prominent members of the oil and gas community.
The demand for fossil fuels is not going away. BP has calculated that oil consumption globally rose by 1.4 million barrels per day in 2013, and that global demand for energy is expected to rise by 37 percent from 2013-2035.
The only way to accommodate this growing need is to reform the industry and ensure that complex projects are correctly planned to permit completion on time and on budget. To survive and thrive, the industry needs a complete overhaul — it just took an oil price plunge of more than $60/barrel to achieve (make everyone understand) that.
(Top image: Courtesy of Thinkstock)
This piece first appeared on the io’s Powerful Thinking blog.
Dan Jackson is CEO of io oil & gas consulting, a GE and McDermott venture. For more information about io oil & gas consulting, visit www.iooilangas.com. To read more from Dan Jackson and the team, follow io on Twitter @io_oilandgas.