2017 will see a better outlook in upstream
than the past couple of years
Will 2017 signal upstream to start spending big again?
LONDON, 15 days ago
By Julie Adams
The future of upstream energy 2017 has started on a more optimistic note than what we have seen in the past couple of years. If we consider where we were this time last year we had oil prices under $30 per barrel.
The optimism that we’re seeing in the market is coming from the agreement that Opec and non-Opec producers have made to cut some production out of the market for the first half of this year.
The big unknowns are still how quickly US production will come back, and we’ve actually seen some analysts adjusting forecasts back down at the end of 2017. Also, the market is not used to being in a position of having tight supply. Are we going to see more volatility or shock to the oil price?
As soon as the stockpiles and inventory go away we’ll see the market come back into balance, and we’ll be dealing with a tighter market and we haven’t seen that for a couple of years.
What key trends can we expect in upstream in 2017?
What we’ll see in 2017 in upstream is a better outlook than we’ve seen over the past couple of years. It’s expected to be the first year in a number of years that we’ll see improved expenditure.
We’ve seen a lot of cost cutting and focus on efficiency in upstream in the last few years. But what’s happened along with cuts to capital and operational expenditure particularly capital expenditure has been a lack of discoveries. There hasn’t been as much focus on exploration.
In fact, there’s been a very dramatic fall in the number of exploration wells drilled, and discoveries made.
So there’s now an expectation that 2017 will be a year to kick-start upstream with more spending.
We’re actually seeing a bit more focus on M&A, with some very big deals at the end of 2016 and start of 2017 - so a focus on growth.
It’s hard to say whether the impact over the last couple of years is going to have an effect on production going forward - there’s an expectation that it will in the next decade. What we’re seeing short term is much more focus on the future than we’ve seen in the last few years.
How can companies take advantage of global upstream opportunities in 2017?
The energy industry is firmly in the transition – by this I mean the move toward a lower carbon future.
A lot of oil companies are adjusting their businesses to deal with that transition. For upstream companies it means there’s a core business and also other businesses that are newer or more related to lower carbon or renewable fuels.
The other thing that’s different is there’s been a lot of dramatic change economically and politically. That change is compounded by technological or digital change.
The digital opportunities for oil industry are immense. Recent research by Accenture in association with WEF highlighted an opportunity of around $1trillion for digitalization in the oil industry.
This is around things like making sure the C-suite and leadership understand digital and can enable a strategy supported by digital and technology.
It’s also around fostering a culture of innovation in a company, and really understanding the possibilities that an integrated technological architecture can offer a company. If you start joining those dots, you see how powerful those can become. A lot of companies are starting on that road and the opportunities are immense.
Julie Adams is Global Energy Research lead with Accenture.