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2020 IEA Forecast: Oil Prices Will Rise to $80

The worldwide crude oil market has always been associated with volatility and instability. The situation that has been observed in the industry during the previous months became another proof of this fact. According to the reports of experts, oil prices have fallen up to $20, thus having lost around 1/3 of their initial value during one month only.  Even though the rate has not reached its lowest limit (which is $12.45 registered at the end of 1998), the chances that it will fall to this level by the end of the month are quite high, especially if the declining tendency observed nowadays will persist.

As of today, the $20 range is almost catastrophic, taking into account that the highest rate, which has ever been registered in the industry, constituted $115 per a barrel in August 2014. Is this situation going to change in the nearest future? Will the changes be positive or negative? With regard to the current situation, the prognoses of the IEA experts may seem quite shocking, but if they prove to be veracious, the situation in the global crude oil market may significantly change by 2020.

What Do Experts Say?

Having analyzed the current tendencies observed in the international oil market, the experts of the International Energy Agency (IEA) have made quite unexpected prognoses, stating that oil prices will reach the $80 range by 2020. This was reported by the head of the Agency, Fatih Birol, at the IHS CERAWeek conference that was held in Houston. According to the report, the positive changes in the industry will hardly be observed in the nearest future, but the chances that oil prices will start growing at the end of 2016, are quite high. This is because the demand for the product is going to overtake the supply, in the result of which the crude oil stockpiles will start decreasing. The cost rebound will mainly be triggered by the US shale oil production.  

The growth of crude oil prices is expected at the end of 2016 or the beginning of 2017, when the approximate price range will constitute not less than $35 per a barrel. This will become the start of strengthening of the crude oil market and the signal of the development of the global energy industry. The IEA experts are sure that the oil market will eventually face the recovery from the catastrophic prices that are observed nowadays, but this will take long months of hardships.

The Start of the Oil Industry Recovery

The head of the IEA pointed out that the US shale oil market will gain strength and will start developing rapidly as soon as the oil prices will reach the $60 per a barrel. This will become a kind of a “starting point” needed for quick progress.

The representative of the Vitol Group BV, one of the largest and most powerful oil traders in the world, Ian Taylor, is not so confident about the positive changes predicted by the International Energy Agency. He underlines that the US shale oil industry will continue facing the decrease of oil prices for over 10 years. According to Ian Taylor, the dramatic price growth is unlikely to be observed in the industry in the nearest future. The maximum price range will constitute around $50 per a barrel of crude oil, but it will take from 5 to 10 years to observe the result.

The IEA experts agree on the point that oil prices will not achieve the $100 range, but the facts and tendencies observed these days, make it possible to suggest that the situation will still change for the better in the nearest future. Even the smallest increase in oil prices will make the explorers of the US shale start drilling new sources that contain a rich supply of crude oil. Unfortunately, many people currently underestimate the potential supply of the US shale, but this will not last for a lifetime.  

What’s Next?

With that said, it becomes easy to believe that the global oil and gas industry will start evolving in the nearest future. By the end of the decade, the market will abound in expensive and profitable mega projects developed by the leading oil manufacturers. The Saudi-led OPEC countries already start regaining the North American market share, while Brent crude has raised the crude oil cost up to $34.69 on the ICE Futures Europe exchange, which is already a pretty good start.  

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Drones Are Going To Change the Landscape in the Oil&Gas Industry.

Drones are opening a new technological frontier towards modernizing the oil and gas industry. Drones are unmanned aerial vehicles (UAV) which are remotely operated. Autonomous vehicles are however not new to the industry as construction and inspection teams dealing with offshore underwater or subsea projects use ROV's or remote operated vehicles to perform tasks in deepwater out of the reach of divers. The feasibility of drones to be used in the oil and gas industry was first studied by BP and California based drone manufacture AeroVironment back in 2006 with the aim of drones being used in the icy oil fields of Prudhoe Bay in Alaska. It took the companies more than 7 years to get FAA approval and airworthiness certificates simply because existing laws weren't adequate to support UAV use for commercial purposes.

1. The use of UAV to survey and capture geospatial data is significantly more efficient and a cheaper alternative to conventional methods. Conventional methods of mapping geospatial data include aerial photography and ground based surveying or even utilizing LiDAR (Light Detection & Radar) is time and cost consuming to perform. The approval permits for a fly zone or access to areas on the ground can further hinder the ability to conduct surveys quickly and efficiently. Even mapping assets on land owned by the exploration and production companies can be painstakingly inaccurate as thickets and hedges impede the ability to get good images of the condition of the assets. At sea, the process of aerial survey is subjected to flight time limitations and weather which oftentimes delay the survey campaign longer than necessary. 
2. Drones potentially eliminate most accessibility and flight time issues simply by being more flexible. Drones can fly for a certain hours, recharge in about double its flight time and continue flying again. It can be deployed at location and it can carry LiDAR or be changed to camera view on site within a couple of minutes giving it the flexibility to perform any type of aerial reconnaissance. 
3. The introduction of UAV's into inspection campaigns significantly improves the effectiveness of the inspection being performed. One of the most talked about usage of drone technology is to inspect flare stacks, which using an UAV, inspection can be performed without turning off the flare operation saving almost USD 1 million a day in operational costs. 
4. UAV's can perform visual inspection from nearer distance without risking the asset or lives of inspectors to perform the inspection. UAV's can also perform general visual inspection on any structural or mechanical members especially where height is concerned without the need of additional permits or safety consideration conventionally required for inspection using rope access by inspection personnel. This gives UAV's significant advantages against conventional methods.
5. UAV's are going to be playing a more important role in disaster, environmental, and safety assessment without risking the life of personnel to perform the required tasks. Gas emissions or leak monitoring can be performed safely from a distance before any personnel is put into action to perform rectification or modification on any section of the rig, plant or refinery. UAV's can be fitted with various sensors and gas detectors which will detect potential hazards and provide better risk assessment to safety officers before approving work permits. This method not only saves lives but also minimizes the risk of any potential incident that might lead to asset damages. UAV's are also playing a significant role in performing environmental survey on oil companies assets and indentifying potential environmental impact their assets have on the wildlife in the surrounding habitat.

The advantages of UAV's in the oil and gas industry will significantly change how assessment and inspection are performed. UAV's makes the process significantly more valuable simply by providing more accurate insight and reasonably reducing cost and safety issues which are associated with more conventional methods. The industry is adapting with more companies joining AeroVironment, SkyFutures and CyberHawk in performing drone based inspection activities. The industry is also investing in new data acquisition techniques and better sensors to integrate drones to be a mainstay in every oil and gas project.

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As lower oil and gas prices deeply affects oil and gas companies across the globe, the industry faces a significant test in managing safe and reliable operations. About 6 years ago, approximately 41 miles off the southeast coast of Louisiana, disaster struck abroad the drilling rig, Deepwater Horizon. The disaster cost 11 lives, $54 billion dollars in compensation and cleanup cost, and affected 5 different states in the US along the Gulf of Mexico. The damning congressional and BP investigation reports points to poor equipments, lack of testing, and indecisive management. What the reports failed to mention was the fact that the rig, incurring almost 1 million a day in operating costs, was 43 days behind schedule and anyone who has worked on the fields know it means safety and reliability is often the lowest priority.

1. Budgetary constraints on any project heightens the level of pressure on oil and gas companies and their contractors to meet cost obligations above anything else. As low oil prices diminishes profit from each barrel of oil produced, oil companies try to reduce expenditure on their balance sheet by cutting capital expenditure or CAPEX. Drilling new wells or building new infrastructures are often postponed and existing projects are rushed to be completed to avoid expensive delays. 
2. Project management teams are faced with increased pressure to accept inferior quality products or poor workmanship in return for meeting scheduled deadlines and to comply with cost cutting measures. Since most manpower and equipment are provided by various contractors, a delay from one contractor might significantly affect the others and cost of completion systematically increases across the supply chain. Like in the Macondo Well with the Deepwater Horizon, the mix of risks from these various factors, if unmitigated, often lead to deadly accidents. 
3. Accidents also tend to rise in workplaces as workers become lax or the pressure of completing the work weighs heavier than performing the job more safely. Often safety officers recommendations are ignored during crucial stages of the project as operations takes precedence over potential stop-work issues which might slow progress. In most cases on the field, issues go unreported due to the possible loss of reputation or bonuses, simply to comply with major safety landmarks like the 'zero loss-time injury’.
4. In the oil and gas industry, when oil prices are high, profit outweighs the risk but when oil prices are low, risk is a necessity for profit. The oil and gas industry has significant amounts of aging and decaying assets. Reports written during the boom years of oil highlighted significant cost increases in the MRO (Maintenance, Repair, and Overhaul) industry. With oil prices now significantly lower, most oil companies will not be able afford expensive maintenance or repair bills that might arise from aging assets. 
5. As oil companies delay maintenance activities and inspection to spread cost, contractors take on huge risks usually on their personnel's life to perform potential hazardous and deadly repairs. Just within the last 3 years, the US and Canada reported an almost 50% increase in significant pipeline incidents. An example was in 2014, when one worker was killed and 2 injured during maintenance on an offshore gas pipeline operated by Chevron Pipeline Corporation. 
6. Assets are often used to breaking point before being replaced in order to maximize return on investment and oil and gas companies normally believe built in safety designs will work according to plan. In most cases these devices need proper periodic maintenance and are overlooked simply because they are never used. Hence in most cases the backup devices themselves might fail in the event of a systematic failure, a point notably highlighted from the deepwater horizon incident.

Oil and gas companies are now facing significant challenges in managing safety and operational risks in their businesses as most of their operations are running on a loss due to lower oil and gas prices. The industry has never been a paragon for safety, and as the oil glut looks set to extend in the near future, it is looking unlikely that the industry will have the impetus to increase tolerance for better safety practices.

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