Roughneck City Blog

2016-01-04
By: Roughneck City
Posted in: Editorial

 Oil and Gas Predictions for 2016 And Beyond

I am no "writer" and I mainly bring news that I think is of interest to the folks on the rig to our site Roughneck City.

Still I have been around the oilfield awhile ( since 1980) and I lived through the Booms and Busts. I have invested my 401K with energy stocks and follow the ups and downs of energy investments on a daily basis so I  am going to take a look into my crystal ball of past experiences and attempt to predict the future- at least concerning the drilling industry.

To begin we have to start with the premise that our current President of the United States hates guns, people who "work hard and save" and of course "hydrocarbons". I will concentrate on the latter.

OPEC led by Saudi Arabia has declared war on American Oil Producers without any intervention or defense from our leader-that's obvious.

Increased production from horizontal drilling here in the USA has created a glut of oil in the world. That glut is furthered by slowdowns in world economies. The demand for oil that was once there has all but dried up as economies of countries like China and India falter.

To protect market share OPEC countries have increased output, flooding the world market in an attempt to stop the more expensive forms of horizontal drilling here in the United States. To date this plan on the part of OPEC has been very effective but it has not come without a downside to OPEC. Saudi Arabia has stated they are prepared to go to $20 a barrel if need be to protect market share and so far the Arabs have not blinked, but these same OPEC countries are now accumulating debt from their manipulation lowering oil prices. These OPEC countries of normal surpluses are getting worried as they take on debt.

Iron Roughneck Oilfield Impact Gloves

Back to the USA now...Rig counts plummet to record lows as drilling stops. The oilfield consolidates. Smaller producers are swallowed by the majors at huge discounts. Exploration of new leasehold stops and investment in the advanced technology that made current record oil output here ends. It's like "The Dark Ages" for oil and gas here.

None of this comes without a future price. Consumers who are happy filling up their tanks at 1980 prices will be shocked when oil returns to $140 barrel and demand that 'greedy" oil companies that are currently losing billions of dollars- be investigated for whatever the conspiracy theory is at the time.

Normally a leader in the world, during the past 7 years the USA has led from behind. as a world leader we used to shape world events- now we react to them and usually in piss poor fashion.

Still world economies WILL recover. The demand for oil will skyrocket and the reserves won't be on hand. It will take years to replace the reserves that were tapped 2 years ago. Drilling rigs will sprout faster than Pigweed in July and a hiring frenzy will follow. Oil will go through the roof.

Factor in that Cheniere Energy has just brought a LNG export facility on line with others to follow that will put a floor in on the price the USA receives for natural gas as the commodity is no longer landlocked to the USA. Natural gas production lost with the slowdown in horizontal drilling for oil will have to be replaced. Natural gas will again spike to $13 MMCF in years to come as producers try to catch up with demand.

Then there is unrest in the Middle East. Sunnis hate Shiites- both hate the Kurds. ISIS hates everyone. Iran will have nukes-Saudi Arabia will enter an Arms Race that will further destabilize the Middle East. A major war seems imminent in the area at some point or time. As we have seen in the past, targets of war in the region are usually producing oil wells.

I could go on and on and even rant about this worthless President until I am out of breath-But the point is this...

You can't see it now- you can't feel it now but "better times" are ahead for America's Oil Workers although we will most likely have to endure a difficult 2016 to see it. Rig counts continue to fall with no sign of capitulation in sight- but they will bottom out then steady as producers drill just enough to pay the bills.

When world economies recover "Katy-Bar-The-Door" because oil prices will skyrocket and natural gas will follow as the price ratio of around 8-1 between the two commodities will return. It will take years for production to catch up.

So those are my crystal ball predictions- a tough 2016 where we all have to survive like Coyotes living off an asphalt parking lot-then a return to prosperity later in 2017-followed by a booming 2018 where you cannot find available rigs to drill, or hands to run them.

Good luck all-Please let me know what you think in the comments section below

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