While today’s oil and gas market is still plagued with many uncertainties as the industry continues to re-adjust after the oil price declines of the past several years, there are a few signs pointing toward a volatile, yet slow recovery. One thing is certain: the industry’s shifting dynamics have changed the way many owners, contractors, and manufacturers will approach doing business in today’s environment.
In response to the dramatic decline in oil prices—which fell from $130 a barrel in 2014 to less than $30 a barrel in early 2016 —it came as no surprise that many companies in the industry were forced to trim their workforces and cut costs.
As the industry recovers, continuing to find innovative ways to improve efficiency while controlling costs will be critical. Being open to change and re-evaluating the way some things have previously been done will be key to these efforts.
Between 2014 and 2016, the oil and gas industry experienced a roughly 40% cut in all capital expenditures (capex) globally due to depressed oil prices, which collapsed after supply began to surpass demand. This was driven by aggressive production quotas from the US, Russia, and the Organization of the Petroleum Exporting Countries (OPEC). In addition to capex reductions, Houston-based consultant Graves & Co. estimated that more than 350,000 oil and gas industry jobs have been cut worldwide. Global energy consultant Wood Mackenzie also estimated that $380 billion worth of oil and gas projects—nearly 70 major projects—were cancelled from 2014 to early 2016.
As the industry begins to stabilize, some key market identifiers traditionally used as indicators have lost some of their standing. One example is rig count data, which is traditionally used as a strong indicator of the oil and gas market. While this metric is starting to improve, higher drilling efficiency and well-level productivity mean that we can now expect fewer rigs coming online while overall oil production increases.
The industry upheaval is serving as an opportunity for many owners, contractors, and manufacturers to re-evaluate their traditional business models. In addition, the loss of valuable resources and people raises this question: how can technology be used to counter these losses, drive efficiency, and improve cost effectiveness?
Where previously there may have been reluctance to make process changes or experiment with new technologies, these solutions are becoming more accepted as the industry looks for ways to improve efficiency, reduce costs and meet project timelines with limited labor resources. Given the new realities, operations will be faced with difficulty meeting their objectives if they continue to use the same processes and technologies they’ve used in the past.
New technologies—whether it’s automation, pre-fabrication, a conversion to more efficient welding processes, or even better integration of internal systems—are key to surviving in the rapidly changing oil and gas environment.
Welding is critical for oil and gas operations, both in the construction of new projects and in maintenance of existing facilities. It is an area where significant savings and efficiencies can be found through process changes, new technologies and easy-to-use equipment. Utilizing more efficient technologies or processes can save thousands of dollars per year per welder, in some cases. For example, utilizing technology that provides complete control of welding parameters at the weld joint with the wire feeder or remote eliminates trips to the power source to make adjustments on outdoor construction jobsites. If an operator makes four trips per day, with each trip taking an average of 15 minutes, this wastes 250 hours per welding operator per year—time that can cost an operation $11,250 for each operator every year, on average. Converting to wire welding processes is another opportunity for substantial savings in the welding operation.
While there is much uncertainty and hesitation, the industry is moving forward. According to the latest Barclays’ E&P spending survey from March 2017, global exploration and production spending is forecasted to increase by 9% in 2017. Petrochemical and liquefied natural gas (LNG) also continue to be areas of strong growth that are moving forward with major investments and project realization confidence.
Moving forward, the industry must become more flexible and innovative. Increased focus on profitability, differentiated capabilities, revamped business models, and new processes and technology will be key to success.