NAPE 2019: Top 10 Oil & Gas Themes
The U.S. oil and gas industry has witnessed significant transformations over the last year, and 2019 should see even more transformative changes. At NAPE 2019 in Houston, Texas on February 11-15, 2019, E&Ps, financiers and service companies will crowd exhibition halls to pick up the latest “swag”, network with familiar and new faces, strike up business deals and lean forward in panel discussions to learn how to get that extra “edge” to maximize profits and extend operations in an ever-volatile commodity price environment.
Below are 10 key oil and gas industry themes that are sure to be centerpieces of discussions among attendees and exhibitors alike at the event, now in its 26th year:
- U.S. Shale vs. OPEC: U.S. crude oil production averaged 10.9 million barrels per day (MMbbl/d) in 2018, up 1.6 MMbbl/d from 2017, reaching its highest level on record, according to the U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO) for January 2019. Last year, the U.S. surpassed Russia and Saudi Arabia to become the world's largest crude oil producer. The agency forecasts U.S. crude production to average 12.1 MMbbl/d this year and 12.9 MMbbl/d in 2020, with most of the growth coming from the Permian region of West Texas and New Mexico. It will be interesting to see how U.S. shale growth offsets production cuts by OPEC and Russia forged in December 2018 in an attempt to rebalance the market.
- Oil & Gas Exports: For the first time in more than a half a century, the U.S. is on track to export more energy than it imports by 2020 thanks to increases in domestic oil and gas production, according to the EIA. On the demand side, the International Energy Agency (IEA) estimates in its latest World Oil Market Report global oil demand growth in 2019 to be at 1.4 MMbbl/d, 100,000 bbl/d more than 2018. The impact of higher oil prices in 2018 is fading, the IEA noted, which should help offset lower economic growth.
- Oil Price Volatility: The fourth quarter of 2018 witnessed a dramatic downturn in crude oil pricing. From October 1, 2018 to December 31, 2018, the West Texas Intermediate (WTI) spot price per-barrel (/bbl) of oil declined from $75.31/bbl to $45.15/bbl, a decrease of 40%. This dramatic drop in crude oil prices tested the projected “breakeven” price for many producers. Oil prices have since seen modest gains so far in 2019 with WTI oil prices recovering at around $50/bbl and the international Brent benchmark at around $60/bbl. In fact, some market observers are more bullish than others with projections of oil prices reaching $70/bbl or more. A myriad of factors (i.e., geopolitical events, supply/demand fundamentals, etc.) will ultimately affect oil pricing in 2019.
- Energy Policy: Donald Trump is likely one of, if not the most, pro-energy U.S. president in recent memory as evidenced by legislation around minimizing government regulations to streamline oil and gas projects and pipelines, to name a few. But, ongoing U.S.-China trade disputes, a divided government and ongoing geopolitical events (i.e., sanctions on Venezuela’s state-owned oil company PDVSA, etc.) threaten to derail the pro-energy agenda.
- M&A Activity: Last year, total M&A transaction deal value reached nearly $85 billion with the lion’s share coming from the Permian region for the fourth year in a row with almost $28 billion. Looking ahead into 2019, M&A activity could slow due to weak oil and gas pricing. However, activity this year could pick up once crude oil prices reach the $60/bbl-$70/bbl range.
- Growth of Natural Gas Production: U.S. natural gas production is forecast to average 90.2 billion cubic feet per day (Bcf/d) in 2019, up from averaging 83.3 Bcf/d in 2018, according to the EIA’s latest STEO. In addition, there are nearly 200 gas rigs in the U.S., with the majority of them located in the Appalachia and Permian. This number could go higher in 2019 once new LNG export projects that are set to come online serve as an outlet to alleviate domestic inventories.
- LNG Exports Ramping Up: The U.S. is on track to more than double LNG export capacity to nearly 9 Bcf/d by the end of 2019, according to the EIA, which would make it the third-largest in the world behind Australia and Qatar. EIA’s latest STEO forecasts U.S. LNG exports to average 5.2 Bcf/d in 2019, up from 2.9 Bcf/d in 2018, as new liquefaction trains are gradually commissioned and ramp up LNG production to operate at full capacity.
- Deepwater Exploration & Production Making a Comeback?: The oil price rout of late 2014 forced many offshore E&Ps to cut spending and/or curtail operations. In 2019, this could change dramatically. Spending on offshore oilfield services is forecast to rise by 6% this year reaching $208 billion, before surging by another 14% in 2020, according to Norwegian consultant Rystad Energy AS.
- Permian Basin Cooling Off? Rampant oil and gas production in the prolific Permian Basin over the past year has created more supply than what pipelines can handle to ferry product out of the region to storage hubs, refiners and export markets on the U.S. Gulf Coast. Not only are these pipeline issues impacting E&Ps, it is also putting a strain on oilfield service companies. This could limit future production in the region until late 2019 when new pipeline capacity comes online. Because of the Permian’s pipeline problems, 2019 could be a more challenging year for Permian E&Ps than some might anticipate.
- Going Digital: While it might sound like something from science fiction, artificial intelligence (AI) and machine learning has the potential to reshape the oil and gas sector. Once viewed as a novelty, AI and machine learning are not far away from becoming mainstream for all E&P companies. Within the industry, 2019 could be the year in which service companies and operators alike will transform operations efficiency across their workforce by leveraging advance digital technologies.