Political, environmental, international, and economic: the fast-moving macro factors that affect the oil and gas industry have created more volatility – and more data points that must be analyzed to make sense of it all. As Michael Schwartz at EKA explains, it’s not just political operatives that have to understand the polls.
The 2016 presidential election is entering its final weeks, and soon the stump speeches, Twitterstorms, debates and pseudo-scandals will all be in the rearview mirror.
But for international energy markets, uncertainty continues. The new president is going to have a major impact on the U.S.’s energy future – and with it the oil and gas industry. But that assumes they can work effectively with a newly elected, deeply partisan, and gridlocked Congress – which is by no means guaranteed.
Short-term vs long-term change
As it does every four years, the political melodrama emphasizes unpredictability and change. But once the hoopla is done and inauguration balls are over, other policy shifts and changes in America’s economy – and the uncertainty they produce – come back into focus.
So while pundits and pollsters have been polishing their mathematical models and pronouncing on the latest from the horse race, professional future-gazers in the oil and gas business have been looking at many more factors. One example is the Federal Reserve. The effect of any rise in interest rates could reverberate immediately throughout the dollar-dominated industry.
On the domestic front, oil and gas producers also need to understand the emerging competitive landscape as the energy mix changes. As Hillary Clinton infamously made clear in West Virginia, America’s coal industry is facing a different future. With less fanfare, renewable energy has been establishing a strong but disruptive foothold in the U.S. To counter this, new technologies have boosted oil and gas operators by making LNG and unconventional oil and gas economically viable.
Uncertainty on all sides
On the international front, the agenda of whomever takes over the oval office is likely to be dominated by the geopolitics of the Middle East, Russia and China – whose economic slowdown has already had an impact on energy and commodity prices.
Saudi Arabia’s recently appointed oil minister, Khalid Al-Falih has made it clear that the Kingdom’s oil glut is over, while expressing his firm conviction that the oil market will grow in absolute terms in the next two decades. But that still leaves new tensions between Sunni Saudi and Shiite Iran. How these tensions play out, and how Saudi Arabia responds to Iranian oil coming back into world markets, is still a matter of educated speculation.
Further north, Russia’s oil and gas industry has certainly taken a hit from low oil prices. But its vast gas supplies and willingness to deploy them for strategic advantage in Europe are another area of uncertainty. Meanwhile, Venezuela, with its large oil reserves, continues to experience a rolling series of political, economic and humanitarian crises.
Perhaps the biggest unknown of all, however, is climate change and the impact of attempts to mitigate it. Resolutions made at the 2015 United Nations Climate Change Conference (COP 21) in Paris have brought international agreement on tackling climate change closer than ever before. And now that both the U.S. and China have signed up, the likelihood of it having an impact on the oil and gas industry seem greatly increased. But the non-binding commitments and lack of enforcement mechanisms mean that long-term success is by no means guaranteed.
Volatility at top speed
Uncertainty is something that oil buyers, sellers, and heavy consumers have learned to live with. This has always been a volatile and fluctuating market. And the costs of being on the wrong side of a position can be both devastating and wide reaching.
But the pace of change is accelerating dramatically. The volume of data produced by and about any given event has increased exponentially, as has the velocity at which it is disseminated. The time between an event taking place and its impact being felt is vanishingly small.
Oil and gas businesses need to be on top of these macro factors, while also assessing and understanding information coming in from global supply chains, logistics and transport operations, global currency fluctuations, and the micro-data transmitted from newly connected equipment and sensors. According to the 2016 Upstream Oil and Gas Digital Technology Trends Survey, sponsored by Accenture and Microsoft, ‘Digital investment today is focused on mobility and the Internet of Things (IoT) – with analytics and IoT predicted to lead the way over the next 3-5 years.’ That’s alongside the constant assessment of risks associated with markets and prices, credit and counterparties, and international regulation.
All of this has become too much for non-specialist tools to handle. To manage in today’s environment, an industry-specific analytics solution, like Eka’s Commodity Analytics Cloud, that has commodity-specific algorithms, and which that can merge data from multiple systems and analyze huge amounts of information while instantaneously turning into actionable insights is necessary.
Data, visibility and technology
Anyone in this market needs an accurate picture of the world’s economic, political and demographic shifts. It is essential to know the potential meaning of the U.S. president being refused a red carpet in China, or personally insulted by his counterpart in the Philippines. They need a view on Brexit, political tensions in West Africa – and the impact of weather or piracy on traditional shipping routes.
They also need to make sense of that picture. Above all they need to make timely, informed, evidence-based decisions. Advanced data management and analytical capability, such as that provided by Eka’s next-generation ETRM software, are the tools around which any oil and gas trading or buying strategy must be built. Without them, firms will be stuck in the slow lane: and by the time they react to the latest economic or political data, the new president will be running for a second term.
石油圈
