Six Lessons the Oil & Gas Industry Learned in 2015

Daniel Walsh Energy • Business • 3 minute read

It’s been a tumultuous year for the oil and gas industry, with crude oil prices falling from over $100 per barrel last summer to a low of just over $40 in late August. This decline is largely due to decreased demand from China and OPEC’s strategic refusal to cut production in the face of a supply glut. Despite the sharp fall in prices, some companies have been able to remain profitable by taking advantage of new technologies and niche markets.

We thought we'd take a look at some of the most important lessons the industry has learned in the past twelve months.

The growth of new technologies doesn’t always increase hydrocarbon demand

Much of the recent decrease in demand for hydrocarbons can be linked to a slowdown in the global economy. However, some of the lost demand is associated with structural changes related to the adoption of technologies that make more efficient use of fuels and feedstocks. Ironically, many of these technologies were developed to cope with the high hydrocarbon prices that prevailed until recently.

OPEC isn’t as unified as it once was

Some cracks have begun to appear in the foundations of the once-unstoppable cartel. The gulf members, led by Saudi Arabia, have maintained production in the face of a supply glut and prices that have consistently been below $50/bbl. The Gulf States might be able to hold out for a while at such prices, but poorer OPEC members are hurting. Recent diplomatic attempts by Iran and Venezuela to convince OPEC to cut production are a sign of internal dissent and may portend future weakening of the cartel.

New technologies don’t always require high prices to flourish

Low prices have spurred investment in cost-reducing technologies and techniques. Most prominent this year are zipper fracking, in which two parallel wells are fractured simultaneously, and stacked laterals, in which many parallel wells are drilled to different depths from the same pad.

There is money to be made (and lost) in water

A prolonged drought in North America combined with an attentive public and increasingly tough regulations have brought water to the forefront. The cost of obtaining, storing, treating, and getting rid of the billions of liters of water used for drilling and stimulating wells in Canada and the US is measured in tens of billions of dollars, which is a boon for servicing companies. Producers will need to manage water-related costs efficiently in the coming years to remain lean.

It’s worth giving tight oil wells a second lease on life (and a third, and a fourth)

Refracking – stimulating declining wells that have already been fracked once - is on the rise. The fact that refracking is typically carried out on horizontal wells less than ten years old shows just how quickly our knowledge of fracking in tight oil shales has improved.  Refracking makes even more sense given today’s low prices – companies can increase production on existing wells for a fraction of the cost of drilling and fracking a new well.

New pipelines are a tough sell

The vast majority of oil consumed in North America has spent some time flowing through a pipeline. Despite the importance of these critical conduits, they have become a tough sell in Canada in recent years. Projects stymied by public opposition in 2015 include TransCanada’s Keystone XL and Energy East pipelines, as well as Enbridge Inc.’s Northern Gateway pipeline. Companies will need to work with the public if they hope to win support for the projects by the end of the decade, when production is expected to exceed existing pipeline capacity.

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