Engineering news
Oil prices remain low, around $50 a barrel, and analysts say there is nothing in the global economy to suggest there will be any increase soon. The contracting effect that this is having on the oil and gas sector is all too clear. Projects are being curtailed and job losses are mounting up.
Last month, Shell cancelled all present and future activity in the Arctic, having spent almost £5.2 billion over nearly a decade in its attempts to reach an estimated 4.3 billion barrels of oil off the coast of Alaska.
While the environmentalists celebrated, oil and gas executives shook their heads and stared at the ground. The reality of low oil prices is that some resources are just too costly to develop, no matter how advanced the technologies employed and experienced the engineers.
The end of Shell’s Arctic adventure was announced against a growing stream of job cuts in the sector. Major firms around the world such as Schlumberger, Halliburton, the Wood Group and Aker Solutions are slashing head counts by the thousands. The cuts are not restricted to suppliers – oil producers are also cutting jobs. ConocoPhillips became the latest to announce major restructuring last month. The firm is to lay off 1,800 workers, 10% of its global workforce.
Oil and gas companies are hardy – the business is traditionally cyclical. But the sheer number of job cuts – some put the tally at almost 200,000 to date – plus the project cancellations lead to the question of when the blood letting will cease. Is this a period of adjustment to a new financial reality after years of profligacy, or a sign that oil and gas is past its peak?
The question is timely, because the latest round of the United Nations climate change talks is due to start at the end of next month in Paris. Top of the agenda for most is carbon pricing. There is growing consensus across different industries and governments that an internationally agreed price on carbon emissions is required to truly tackle climate change. Surprisingly this consensus includes major oil and gas companies, such as BP, Eni, Shell, Statoil and Total.
That these oil and gas companies are calling for strong enforceable taxation on their product at a time when their industry is already suffering seems odd. But, despite the dithering, stricter international agreements to tackle climate change are inevitable. It’s better to be at the table influencing policy than excluded. It’s also likely that any policy will favour lower-carbon natural gas over coal. That will provide yet more incentive for electricity generators to switch to gas, a bonus for these oil and gas firms at least in the short term.
Longer term, market stability and consistent regulation across different regions is more desirable to global energy firms than a mix of different carbon pricing mechanisms and frameworks.
It would seem the oil industry is down but not out, and that the biggest firms are finally planning for a future where the dirtier fossil fuels are a smaller part of the global energy mix, and prices permanently lower.