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The Current Concerns in the Oil and Gas Sector

As an industry, the oil and gas industry contributes to more than 10% of the global GDP, with the bulk of the world’s economies being dependent on the commodity. Expensive oil and gas translate to lower efficiencies in manufacturing and transportation sectors; that drive the global economy. While other forms of energy serve to supplement oil, the transportation sector is wholly dependent on oil hence triggering the need for sustainable solutions for the dwindling industry.

Many countries in the Middle East, America, Europe and Africa rely on oil exports to fund their annual budgets. For this reason, discussions around the sector elicit concerns among the suppliers and consumers in equal measure. With more players joining the oil and gas markets, market shifts are inevitable as the demand seems to surpass the supply, resulting in a significant price change. The hard hit players include Saudi Arabia: whose 73% of revenues comes from oil and Russia whose more than 50% of income emanate from energy exports. A look at the current issues facing the industry gives insights on what to expect in the next few years if the trends continue.

Safety Concerns

Based on a PWC report of 2012, oil and gas industry supports more than 9.8 million jobs, equal to about 5.7% of the US employed population. With the US enjoying increased oil production since 2009, the sector has seen a rise in the number of those working directly and indirectly. While that means well for the economy, the industry comes with substantial risk to the people involved in the day to day operations of the oil refineries, tankers and gas stations.

From drilling to distribution, every stage comes with hazards that could be fatal if not addressed. Some of the common safety concerns include vehicle accidents, explosions, and fires, chemical exposures, falls, traps and slides among others. In areas where these have occurred, industries have parted with huge sums of money to compensate the victims of the accidents. For this reason, one needs to employ ample safety measures to guard against such occurrences.

While most companies confer security responsibilities to their employees, the biggest responsibility lies with the directors as they are tasked with buying safety facilities required to mitigate the risks. When it comes to employees, employers need to ensure they are well equipped to prevent potential traps, slides and shield from severe impacts of explosions. That can only be possible when they consider fire-resistant clothing such as FR shirts, Pants, Headwear, fall protection, Cartridges, Coveralls, Overalls, Gloves, boots and Rainwear among others.

The New Technology

In the wake of the new technology, it’s hard to assume the tremendous advancements that continue to spur the oil industry. The need for more oil and gas across the globe requires players to adopt the latest technology to improve efficiency, hence reduce the cost of operation. For instance, the establishment of the subsea oil fields comes a long way to meeting the global demand for affordable energy. The technology is the most sought after owing to the impact it has on costs and revenues.

Over the last two years, fracking and horizontal drilling have raised US’s domestic oil supply to an all high since 1989. The process has substantially increased the drilling success rate of getting producible oil to about 99% which is close to perfection. Other countries are yet to adopt the process, which is expected to have a lasting impact on the industry. Based on a survey of the international energy agency, conventional drilling methods only recovers up to 35% of the oil, leaving the bulk trapped in the rock. New technologies to unlock the trapped oil are still in the pipeline as the industry expects to

open more than 300 billion barrels. The techniques yet to find widespread use beyond the older fields where the level of risk is low and with existing drilling facilities.

Alternative Energy

In an industry suffering severe price drops, oil drilling pollutes the environment in different ways. For this reason, environmental policies have come up to control the level of emissions across the globe. For this reason, numerous investments in clean energy are evident especially in the oil importing countries as they try to lower the cost of energy and preserve the environment. It seems to have shaped the USA politics as some of the candidates highlight clean energy as one of their top priority agendas, should they become president.

In 2015, the US planned to install 12 gigawatts capacity of renewables, which is more than all conventional sources combined. Solar panel installations have been on the rise with more expected to be done at the household level. How well other countries will adopt, clean energy initiatives might be derailed by the current oil prices, which makes it more economical to use cheap oil than make expensive investments.

The Increased Oil Supply to the Market

In the wake of weakening price of the oil, oil exporters are yet to deal with Iran’s entry to the oil market, as the Western powers lift sanctions on the nuclear-entangled nation. Being the fourth largest petroleum producer and the world’s biggest gas exporter, the largest and perhaps the immediate impact will be pumping vast quantities of natural gas and oil. It means more harm to the oil exporting countries such as the regional rival- Saudi Arabia.

On the other hand, the bigger portion of the market is anxious for a further fall in prices that will lower the cost of doing business. Analysts estimate a total of between 3 million and 4 million barrels of oil from Iran per day that may shift the current trends. As if not enough, America, Canada, and some African countries have recorded a rise in oil production lowering domestic demand hence cutting on the imports. Previous importers to these nations have turned to Asia and other emerging markets for the commodity.

 

The Oil Prices

 

Economic analysts attribute the current slump in oil prices to oversupply, the economic slowdown in China, decreased demand in the European market and the increased domestic supply in the US among other factors. The issue seems to focus on the oil exporters, more than it does the consumers who wish for an extensive period of cost effective energy that lowers their cost of production. With the prices hitting $27.56 per barrel, the oil sector is evident as the key driver for geopolitics and the economy.

Being a significant factor in the global economy, oil crises often trigger economic recessions in the world as a whole. Often, the world has had to deal with economic recessions caused by high oil prices, and now it might have to deal with one emanating from oil prices. If the Russian case is anything to go by, nations are likely to face higher lending rates that in turn lowers investor confidence. In lieu with that, the employment sector may have to cope with slow growth and retrenchments.

A weakened global economy is likely to lower the demand for the commodity, lowering the prices further and have severe impacts on the countries that solely rely on oil for revenue. The case might be different for oil producers such as the US and the UK whose economy is quite diverse. On the other hand, the leading oil exporters have taken stringent economic measures to suffice the revenue deficits realized as a result. For instance, Russia has imposed 10% cut in government spending while Saudi Arabia is likely to cut down on domestic exploration to stabilize the prices.

How soon the prices will resume depends on how soon the gulf producers such as Kuwait, United Arab Emirates, and Saudi Arabia succumb to the pressure. As it stands, these nations have enough reserves to run their economies for several years, perhaps until the prices stabilizes.


Michael Snyder
Michael Snyder

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