Oil and gas opportunities endure amid the many uncertainties of 2009

Jan. 5, 2009
While 2009 will be characterized by uncertainty, lower oil and gas prices, a hostile Congress, demand shrinkage, and major investment pullbacks by the global oil and gas industry, there also will be a number of positive developments and opportunities for the industry.

While 2009 will be characterized by uncertainty, lower oil and gas prices, a hostile Congress, demand shrinkage, and major investment pullbacks by the global oil and gas industry, there also will be a number of positive developments and opportunities for the industry.

One point of encouragement is that President-elect Barack Obama no longer plans to seek a windfall profits tax on oil and gas companies as long as the price of oil remains below $80/bbl, according to an aide quoted by CNBC Dec. 2.

The funds were to be tagged as a rebate for American consumers when fuel costs were exceptionally high, unnecessary since the price dropped so dramatically.

Environmentalists will continue to push for taxes on the oil and gas industry, however, to pay for alternative energy initiatives, but that action is unlikely to be successful for two reasons:

  • Obama’s energy policy is hugging the National Petroleum Council’s 2007 recommendations to the secretary of energy, which clearly conclude that fossil fuels will remain indispensable through 2030. Obama will seek to clean up emissions to protect the environment, but it would be counterproductive to hamstring the industry that must continue to invest heavily in exploration and production in order to provide the nation with oil and gas. In an interview for Fortune magazine in late June, Obama had said the single economic concern that most worried him was the “supply of energy.”
  • While Obama pays lip service to the mantra that the US “can’t drill its way” out of the energy problem, he does say on his web site that he will “promote the responsible domestic production of oil and natural gas.” He adds that his administration will “establish early identification of any infrastructure obstacles-shortages or possible federal permitting process delays to drilling in the Bakken shale formation, the Barnett shale formation, and the National Petroleum Reserve-Alaska.” That bodes well for some companies in 2009.
  • He also says in his energy policy that he will give high priority to the building of the Alaska gas pipeline system and will work with Canadian and Alaska government officials, oil and gas producers, and other stakeholders to facilitate its construction.

His agenda definitely includes development of alternative energy as well, and oil companies that have invested in such programs can profit from further developments.

Consumption decline

Energy consumption will drop in developed countries but continue to grow in developing nations whose national oil companies are supported by governments keen to maintain their countries’ upward economic momentum. Their growth will be somewhat slower until tangent global economic crises fade, however. The US Energy Information Administration said global oil consumption in 2009 will decline by 450,000 b/d.

As companies postpone E&P projects because of lower oil prices, more rigs and services will become available to operators having funding in place and choosing to proceed. The greater availability of materials and services will alleviate shortages and lower E&P costs. It may take several months to see such cost results, but the active rig count already is dropping steadily in North America.

The industry has pulled through downturns many times in the past, and while the current recession will be more severe than many, several bankers surprisingly do not expect it to last beyond 2011 as governments pour trillions of stimulus dollars into global economies. ING expects that the US economy could return to growth as early as late 2009, while Credit Suisse predicts global growth holding off until 2011, and Deutsche Bank expects growth to bounce up in 2010.

One accomplishment that could help the US and its oil-gas industry in 2009 is the education of the American people about energy security.

The American Petroleum Institute and various industry speakers are conducting seminars and polling Americans, dispelling long-held myths that have led to legislation in conflict with the development of energy supply.

As people become better informed about what is required for the US to gain energy security, they will be better prepared to inform their representatives in Congress what is needed in 2009.