年末观察|扯一扯油气业过去、当下和未来的那些事儿

As the impact of agreements still reverberates through the industry, the strength of the dollar is presently muddling up a sustained price recovery. On the balance, the combined cuts of 1.8 million bpd are deep enough to wipe off the supply glut that has been hampering the market. If the cuts, scheduled to begin on the 1st of January are strictly enforced, then the growing consensus is that the market should rebalance sometime in 2017, with global oil supply matching global oil demand. There is the possibility that the market will flip from a glut to a deficit, a view that is strongly pushed by the International Energy Agency (IEA). Yet, the price rally is unlikely to go far since the third term of the supply-demand equation – oil storage – will take on increasing significance. Although inventory levels in industrialised (OECD) nations have been dropping since August, crude and refined oil levels remain 300 million barrels above the five-year average, and drawdowns will accelerate with decreasing supply to dampen a price recovery. Such concerns have led to somewhat conservative forecasts predicting that oil prices will reach $70 pb by the end of 2017.

On the supply side of the equation, the agreements still leave the door open to producers not participating in the cuts. Nigeria and Libya, two OPEC members, have been exempted, to allow them to restore production lost to internal strife. As both countries take steps to boost production, together they can potentially add a further 1 million bpd to the market, but daunting political challenges first need to be resolved. Thus, it is the North American producers that are poised to rip enormous gains from the production cuts. US rig count bottomed out in May, and the number of rigs returning to the oil patch will quicken, especially in the Permian Basin, if prices continue to hover above $50 pb. Also in play are five thousand drilled but uncompleted wells (DUCs), an amount that is two and a half times the average in leaner years. These DUCs can potentially be brought online within weeks, as opposed to the typical six months’ completion timeframe for such wells. Still, completion rates are likely to be constrained by the availability of workers, as the industry has lost a quarter million jobs, leading many to move away from the oil patch for gainful employment in other industries. Companies cut headcount too quickly and too deeply, so must now bear the burden of labour scarcity, which will hamper their ability to take advantage of the impending bonanza. Under such conditions, the EIA is still predicting that about 0.4 mill bpd to be added to US production in 2017.

Considering the demand side, the IEA recently upped its demand growth forecast for 2017 to 1.3 million bpd, with revised estimates for Russian and Chinese demand. But this appears to be optimistic, as Chinese demand is expected to begin to taper off in 2017. The country is reaching the capacity limits of its strategic reserves, after taking advantage of low prices to fill up. China is also moving to regulate the teapot refineries that thrived in the low oil price climate, a situation that will also hinder demand. Depressed Chinese demand, combined with excessive inventory levels and exempt producers adding significant supplies to the market, will collectively stall price recovery. Prices will largely remain flat unless there is a major supply disruption. President Trump pulling the US out of the Iran nuclear deal and re-imposing sanctions can bring about such a disruption. But this is improbable, as other parties that are signatories to the deal like Russia and the EU are unlikely to go along, particularly after a year into a deal, in which previous critics have grudgingly come around to admit that it is working. In fact, Total and Shell have recently signed agreements with Iran, paving the road for future developments of Iranian oilfields. Therefore, in the short term, expect a new ceiling to be established for oil prices.

In the long-term, the gathering storm of climate change casts an ominous shadow on the industry. This year is on track to be the warmest year on record, making the last 16 years among the 17 hottest years since measurements began. If the world continues to consume fossil fuels as currently projected, then the carbon budget that will limit temperature rise by 1.5 oC will be spent by 2030. The atmospheric concentration of CO2 has permanently crossed the psychologically significant barrier of 400ppm, with 450ppm identified as the point at which temperature rise will exceed 2 oC, and a point of no return for the climate. Of immediate concern is the fact that arctic temperatures have increased at twice the rate of global temperatures in recent years, with ice coverage in November 18% below the 1981 to 2010 average, a situation that appears to be affecting weather patterns globally. Consequently, the world is beginning to take the threat of climate change seriously. The Paris agreement, which will track the intended national contributions to emission cuts of signatory nations, came into force in October. This was faster than any international agreement of its scale. To reduce their addiction to fossil fuels and cut emissions, many countries, particularly the OECD nations, are relying on efficiency gains and the deployment of renewable and nuclear energy.
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Increasingly, oil companies are sitting up to take notice of this changing energy landscape, as the risk of continuing with business-as-usual is the increasing likelihood that they end up with stranded assets. Thus, at the beginning of November, 10 of the biggest global oil companies had joined forces to announce a $1 billion fund to invest in carbon capture technologies and energy efficiency over 10 years. Many consider this level of investment to be a drop in a bucket, but still, it is a start. Exxon Mobil has also invested in carbon capture technology, lending its expertise to an endeavour that relies on fuel cells to capture carbon emissions from power plants. Shell has a portfolio of carbon capture investments, and in October announced that its Quest project in Canada had stored a million tonnes of carbon dioxide in its first year of operation. This is equal to the amount of emissions from a quarter million cars. Deployment of carbon capture technology would allow the oil industry to capture and store carbon emissions, freeing up potential stranded assets and unlocking what would have otherwise become unburnable carbon.

As oil is increasingly needing to compete with other energy sources, European majors like Shell have even voiced their support for a carbon tax, a move that will pile more pressure on coal, the dirtier fuel. Coal is facing assaults from multiple directions, not just environmental pressures, but also economic challenges. The costs of utility-scale solar have dropped to levels that make it the cheapest source of electricity in many locations. The cost of solar and other renewables keep falling, and so much renewables have been recently added to the grid globally that renewable capacity has now surpassed coal capacity on the grid. Even China is now reining in coal production both as a climate change mitigation measure and, more urgently, as a response to the choking air pollution in its cities. The election of Donald Trump, an avowed friend to the US fossil fuel industry, will bring little relief to the coal industry in the US. Cheap and abundant shale gas has been coal’s biggest opponent, and federal action that supports all fossil fuels will only result in more pain for coal.

The most significant long-term challenge to oil and other fossil fuels is the action of capital markets. In a report released in September, BlackRock, the world’s largest private investment with $4.9 trillion in assets, said that it would begin to price the risks of climate change in its investment portfolio. Bill Gates has partnered with a handful of other highly accomplished businessmen to announce the Breakthrough Energy Venture Fund, a $1 billion investment fund to commercialise game-changing clean energy technology. Such has been attempted before, leaving a plethora of failures behind, with the most memorable one being the much maligned Solyndra. The key difference here is that these guys do not require immediate returns and appear to be in it for the long run. In no way is the success of the fund guaranteed. However, the crux of the matter is that capital markets are beginning to take significant steps that would negatively impact the bottom-line of the oil industry in the long run. The oil industry still has a trump card to play, the fact that about half of oil consumption goes to other uses other than energy. It is most likely the raw material used to produce many components on the device that you’re using to access this article. Therefore, until man is able to reliably harness biological sources as a substitute for petrochemicals and chemical feedstocks, oil will still be required, albeit at greatly reduced quantities.

It is in the medium term that things get interesting. Many companies have been able to weather the storm of the past couple of years through efficiency gains, hedging and cutting headcount. Consolidations, such as the one between GE Oil&Gas and Baker Hughes, have helped in shaping recent conventional wisdom that the industry is gearing up for a recovery. Multinationals like Chevron and BP have recently given the go ahead to megaprojects. Canadian producers like Cenovus Energy and Canadian Natural Resources recently approved spending for the first time since 2014, and expected to add a combined 90 thousand bpd by 2020. It is amid this optimism that Shell CFO predicted that oil demand could peak in 5 to 15 years. According to Shell, this would be caused by efficiency gains, particularly in OECD countries. Oil consumption in OECD region is 9% lower than 2005 levels, and this continuing trend will largely offset demand growth from emerging nations. On the heels of this is the fact that oil is about to lose its monopoly as the go-to energy source in the transport sector. The automobile industry is evolving toward electric vehicles (EVs), with every major car manufacturer developing or has developed an electric model to launch production within the next five years. Currently, EVs make up about 1 % of the global automobile fleet, and demand is low. However, with buyers having a plethora of options to pick from in 5 years and the next generation of EVs achieving 200 miles on a single charge (making range anxiety outdated), the age of the EV is dawning.

In the US, the first mass-market 200-miles-on-single-charge EV, General Motor’s Bolt, began shipping this month. It has received mostly positive reviews and will be followed next year by Tesla’s Model 3. These releases will be supported by the proliferation of charging stations, with 30 thousand currently available in the US, compared to 90 thousand publicly available fuel stations. The price of EVs is also forecasted to fall in the coming years, as the cost of batteries is dropping very fast, and competition will become fierce as more EVs get introduced to the market. Diesel powered vehicles are expected to take the brunt of the assault from EVs, hastening the decline of the scandal-riven engine from the world’s passenger car fleet. Refineries that have invested heavily in producing diesel seem none too bothered, as they see an increasing need for it in trucks and ships. However, Electric trucks are already being trialled by Daimler (Mercedes-Benz), and additional models have been announced by Nikola and Tesla Motor Companies. In shipping, European emission regulations are driving the switch from fuel oil to diesel, yet LNG is also seen as a viable alternative, as other applications for LNG are being explored due to global LNG overcapacity. Even oil-derived aviation fuel has biofuel challenging its dominance, although a sustainable supply of the fuel in the volumes required is at least a decade away.

Beyond the US, EVs are getting strong regulatory support, particularly in Europe. In October, Germany’s Bundesrat (Federal Council) passed a resolution to ban the internal combustion engine starting in 2030, but it is unclear how such a proposal will work. It has also been muted that the UK views EVs as an opportunity to rebuild its manufacturing base as it pivots away from Brexit. In addition, Tesla is on the hunt for a suitable location in Europe to build a second Giga factory and has received invitations from the governments of the Czech Republic, the Netherlands and Portugal among others to set up shop. In preparation for the roll out of expanded EV models, in November BMW, Daimler, Ford and Volkswagen Group (with Audi and Porsche) announced a collaboration to install an ultra-fast charging network along critical highways around Europe. Yet, EVs are poised to make the biggest splash in emerging nations, in a similar manner to the way in which fixed telecom lines were bypassed for a direct move to mobile. China is already the largest market for EVs, and is dealing with massive air pollution problems in major cities. It has the structure in place, and also an urgent public health incentive, to expand EV penetration. The prediction of oil demand in emerging nations and the impact of technology-driven innovations like ride sharing services and autonomous vehicles are the sticking points that have led to a divergence in outlook between automakers and the oil industry. Some automakers envision that up to 40% of cars sold in the mid-2020s will be EVs, while oil companies predict that EVs will make up less than 10% of the global fleet by 2035. It’ll be costly to whichever side ends up being the loser in this debate.

In conclusion, the oil industry is facing is a straight race between a supply shortfall borne out of deferred investments and declining demand fuelled primarily by accelerated EV penetration. The supply shortfall will win out, leading to one last boom for the industry that will be followed by a slow and inescapable decline. Carbon capture technologies hold the promise of continued consumption of fossil fuels while also limiting carbon emissions. Yet, this is increasingly looking to be of secondary importance, as apart from its petrochemical uses, oil will need to compete directly with other sources of energy. Oil majors are taking varying degrees of steps to withstand the impending onslaught. Exxon Mobil has invested in Fuel cell technology for carbon capture, Shell has shifted its focus to gas while also maintaining a carbon capture portfolio, and Total has restructured to become an integrated energy company. Others either fall somewhere in between or are blithely ignoring the imminent threat. Services companies, technology providers and equipment manufacturers need to take bets to stake a claim for themselves in this changing landscape. One area that is ripe for investment is energy storage. Beyond batteries, other storage technologies such as compressed air and cryogenic air storage can make do with specialist expertise gleaned from the oil industry to smoothen out supply and demand in the electricity markets. On grids that are taking on more solar and wind capacity, energy storage will be required to provide energy at night and when the wind is not blowing. The world as we know it is mostly built on the trapped sunshine that is oil. The oil industry was the most consequential of the 20th century, and therefore should and must step up to the challenges of this century.