The oil & gas industry sector - which ARC defines as upstream and midstream oil and gas exploration, production, and transportation, plus gas processing - has witnessed dramatic ups and downs in recent years.
Oil prices, which had peaked in June 2014, subsequently dropped by more than 70 percent due to continued oversupply. This was largely driven by the US shale boom (enabled by hydraulic fracturing), a slowdown of growth in emerging economies, and Saudi Arabia?s decision not to curtail production to maintain balance between supply and demand. Many believe that this was to test the resiliency of relatively higher cost shale oil producers in a time of falling energy prices and shrinking margins.
As of spring of 2016, prices were making a tentative rebound, but nowhere near the levels required to spur the considerable capital investment of the pre-crash environment. It may be years before we see the robust level of capital investment that characterized the upstream segment in 2014.
The LNG and gas-to-liquids (GTL) sectors, both typically large consumers of automation technologies, had been exhibiting good growth until just recently; but a looming global oversupply of LNG from new production in Australia, Africa, and North America is likely to curtail many of these activities for the next couple of years. The midstream sector, which includes oil and gas pipelines, terminals, and storage operations, is experiencing modest growth. There also continues to be a wave of modernization of automation and controls in the tank farm and terminal sectors, which have traditionally relied on less sophisticated forms of automation.
Oil from unconventional sources, such as hydraulic fracturing, Canada?s oil sands production, and subsea oil and gas production, are not viable unless oil reaches a certain price point, generally considered somewhere between around $35 to $65 a barrel. Until prices rebound significantly, capital expenditures in unconventional production in particular will continue to be depressed.
Both large, integrated oil companies such as ExxonMobil and Chevron and state-owned oil companies such as Petrobras and Statoil continue to announce significant cuts in capital expenditure for 2016 and beyond. However, these (and other) companies still have a considerable number of projects in the works and are already planning for the day when prices rebound. Even in a depressed environment, project costs remain high, and these companies continue to look for new ways to radically decrease project costs and time to project completion, as well as increased efficiencies to deal with more challenging market conditions and improve profitability.