For many professionals in the oil and gas industry, we could easily list the impacts the industry has on our lives. For example, the boost in jobs. In 2013, over $200 billion was spent by the industry, which brought with it jobs and wealth. When the price per barrel drops 70 percent in two years, local impacts are top-of-mind. But historically, lower energy prices are seen as beneficial to the economy as a whole. However, this time may prove to be, unfortunately, very different.
- Falling energy prices stimulate spending through cheaper manufactured products and transportation. Energy companies are usually hedged and can normally withstand 10 to 20 percent decreases in price.
- However, 70 percent has taken most companies to bankruptcy but still owing outstanding loans for infrastructure.
- Citigroup Inc. reported a 32 percent increase in non-performing corporate loans Q4 2015 compared to Q4 2014. This loss will be reflected in interest rates for all consumers. Big declines cause forced deleveraging among producers, dragging upon an economy still recovering from the 2008 recession.
- For Iraq, 95 percent of their national revenue comes from oil, a large component of which is being used to fight ISIS. The Kurds are currently running an $18 billion deficit, which directly affects U.S. national security.
- Oil and gas counts for 70 percent of export incomes for Russia, and the country loses approximately $2 billion in revenues for every $1 drop in oil price. As the largest supplier to Europe, changes in energy prices will be reflected across European markets.
- Libya, Iran, Algeria, Bahrain, Nigeria, Venezuela, Russia, Saudi Arabia, and Iraq all require oil to be over $100/barrel to balance their budgets and avoid economic collapse.
The chaos caused by all this turnover has led to an upswing in acquisitions and consolidations in holdings. U.S. oil and gas firms may have taken a beating, but they’ve learned from the school of hard knocks on how to diversify. And they are making use of this time to prepare for the next big boom.
With the lifting of the export ban and the uncertainty among global producers, a global market is waiting to purchase reliable, inexpensive U.S. petroleum. The eventual winners of this downturn will be those who stand ready to produce again at a moment’s notice, which will require purchasing of plays during these discounted times and having the infrastructure in place to bring their goods to market. With these talents and permits in hand, the remaining U.S. petroleum producers occupy a key position to still realize amazing profits and bring prosperity back to the shale plays.
About the author
- As an environmental scientist, Kate has more than 13 years of experience including ecological surveys and field studies, functional assessments, preparing environmental reports and permits, data management, stream channel and wetland restoration, peer reviewed research, and coordinating with local, state, and federal regulatory agencies, as well as public and private stakeholders.
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