Long vs. Short Term

ExxonMobil’s latest long-term energy outlook paints a generally robust picture for oil and natural gas despite the steep fall in hydrocarbon prices and cuts in capital spending. The outlook predicts that the oil and gas share of the energy market will grow and that renewable energy sources will remain only a small share of the total picture.

Oil will continue to be the world’s largest energy source, with demand for oil and other liquids growing by 20% from 2014 to 2040, according to ExxonMobil’s The Outlook for Energy: A View to 2040. Coal, which is currently the globe’s second-largest fuel, will decline from providing 25% to 20% of total energy demand as industry uses more fuels with lower CO2 emissions. Natural gas use will increase as it replaces coal as second in consumption.

The outlook belies shorter-term predictions for the oil and gas market, which continue to forecast a tough year ahead. IHS CERA believes North American independents will need further capital spending cuts to align spending with cash flow. An analysis of 44 North American E&P companies shows that those firms need to cut spending by another USD 24 billion, or 30%, to maintain a healthy fiscal balance. E&P companies cut their 2016 spending budgets sharply from the previous year, but the price of oil has fallen sharply since the fourth quarter of 2015.

Consultancy Wood Mackenzie predicts “another volatile, uncertain, complex, and ambiguous year” with only the most robust or strategically important projects going forward. It projects that exploration spending will be only half of its 2014 peak. The lack of new investment and aging, high-cost fields in some regions will be a challenge for operators, but there are some bright spots for potential investment, especially offshore Mexico and Iran.

Wood Mackenzie offered several predictions and milestones to watch for during the rest of the year.

Long vs. Short Term

John Donnelly, JPT Editor

04 February 2016

Volume: 68 | Issue: 3