We talked to industry experts about how things have changed since the 2015 oil price crash.
Pumps & Systems

Oil and gas industry experts are confident that the market is on the rebound following a dip of around $30 per barrel in 2015.

By early 2018, prices have risen to around $60 to $65 per barrel. Falling prices sparked the rise and search for renewable energy sources, but oil and gas continue to be the world’s primary sources of energy.

“It is a good thing that some people are trying to improve efficiency of those sources of [renewable] energy,” said Axel Bokiba, Pulsafeeder vice president of product management and business line director. “The reality is that the energy links will still largely be made of fossil fuels over the next 25 years.

“I believe that 80 percent of that energy will come from the fossil fuels. Oil, gas and coal will still be needed. That requires new sources, new wells to be drilled and new basins to be discovered.”

When oil prices were around $40 per barrel, focus shifted to developing projects on U.S. land. There, cash flow could be generated quickly, said Robin Macmillan, senior vice president at National Oilwell Varco (NOV). Offshore projects bring in multiyear returns but cost much more to develop.

Offshore activity is now at a low point, Macmillan said. NOV has shifted its revenue focus over the past two to three years from offshore to onshore, and it would like to see major oil companies invest more offshore. But that will not happen until the projects are commercially viable.

“It will be good to see the offshore business come back,” Macmillan said. “Some of that will be driven by the effect of the global balance of supply and demand on commodity prices, along with the fact that there are now technologies enabling drilling to be more efficient.

“Some of those efficiencies have been tested and proven on land and can be taken offshore, such as drilling automation. We are seeing increasing levels of automation, which are helping improve those efficiencies; some of
the technologies can help more of the offshore business become more profitable.”

Shallow water (below 400 meters deep) is the most significantly depleted source of oil and gas. Bokiba and others feel that companies need to expand drilling to deepwater ranges (400 to 1,200 meters), but the challenge is finding a cost efficient way.

“Oil and gas will have to be extracted from deeper and deeper areas offshore,” Bokiba said. “Offshore and deep water will be something that further drives technology. We know that energy will have to be extracted and the whole oil and gas industry will have to find ways to extract energy in a cost efficient way.”

Macmillan feels that the oil and gas business has been traditionally slow to adopt new technologies, but the downturn of the last few years has seen an increase in the need for reliable, repeatable performance, which has boosted the demand for automated systems.

The issue now is not about how high oil prices will go, but what the breakeven price will be. In 2017, Bokiba gave a presentation at OTC in Houston that showed a breakeven price of about $80 per barrel.

Many in the industry consider this to be too high and have focused relentlessly on increasing efficiencies and lowering this breakeven price.

“In addition to the many partnerships and commercial agreements amongst EPCs [engineering, procurement and construction companies], I believe that it will be technology enhancements that close the last gaps and make deepwater projects more cost-effective,” Bokiba said. “Some of these enhancements will include more compact and energy efficient equipment on platform topsides, as well as innovative injection architectures and more efficient separation processes on the sea bed.”

Here are some insights from other industry experts.

How do you see the oil and gas market now?

“The industry seems to be recovering from its recent down cycle, particularly in lower cost upstream sources. However, the slower rebound in oil prices has tempered the recovery in some higher cost crude producing areas.” - Jeff Clarkin, business development manager, Inpro/Seal

“The market has stabilized to a point where steady growth can be expected and oil and gas companies can focus on reducing operational costs to drive profits.” - Steven L. McNair, director, product management and marketing, Windrock

“We see the oil and gas market starting to show positive signals with some investment in research and development equipment. This tells us that companies are still looking at ways to remain profitable at the level of oil today, through testing new processing methods.” - Nick Daddabbo, product line manager-pumps, Teledyne ISCO

What are some key trends you are seeing?

“Green technologies and renewables are continuing to become more cost competitive and make inroads into what have been traditional fossil markets, particularly in power generation, which has forced oil and gas providers to provide cleaner burning fuels more competitively while under considerable price pressure.” - Clarkin

“This is clearly the era of the digital revolution. Oil and gas companies stand to improve operational cost performance simply by embracing the digital platforms that allow insights into their operations through data monitoring and observation. When this data is refined through the analytics that machine learning can deliver, companies will be able to proactively tune their operations and avoid issues before they can develop. This will have an immediate and dramatic impact on the bottom line of oil and gas companies.” - McNair

“We are seeing more companies investing in new equipment to conduct lab research and look for ways to get more out of the material they produce. The adjacent industries that use the byproducts of production, like the plastics market, are thriving.” - Daddabbo

Is the current price of oil good or bad for the pump industry?

“The current price of oil is facilitating tempered investment in downstream operations, while upstream operations are seeing less cash investment due to the heavier or more extreme cyclicality. We’ve seen the majority of investment on reliability-focused upgrades to allow our customers to operate more cost effectively. With that said, demand for our products has been strong through 2017 and into Q1 of 2018.” - Clarkin

“The current price of oil and gas is good for the pump companies as customers are once again spending on capital investments.” - McNair

“The current price level is good as long as it hangs north of the $60 to $65 a barrel range. Of course, the further up it goes, the better. The oil/gas companies have learned to be profitable at the range of price we see today. They continue to look for ways to be more profitable at lower prices also.” - Daddabbo

In your expert opinion, what do you see the oil and gas price/market doing as we get into the summer months?

“Barring any geopolitical unrest in major supply areas, we would expect the price of oil to remain stable, with perhaps a slight decline as we come out of the home heating season in North America. Further spikes in oil prices should be tempered by strength on the supply side in both North America and the Middle East.” - Clarkin

“I believe the market will continue to be stable. Barring major natural disasters, I do not look for drastic increases or decreases in price. I would anticipate a steady and slow climb.” - McNair

“I believe that the market will continue to fluctuate around $60 to $65 a barrel with occasional spikes to $70 based on increased demand due to people having more money in their pockets now and the things they do with the new cash.” - Daddabbo

What concerns do you have about the market over the next few months and what could be done to alleviate those concerns?

“Of particular concern is that continued price pressure from renewables could stymie a longer recovery. This will force both upstream and downstream operators and equipment suppliers to reduce production costs and drive efficiency. We would encourage companies in these spaces to look beyond the two- to three-month window and reduce overall operational costs through investments in reliability improvements and efficiency gains for the long term.” - Clarkin

“There are not many concerns in the market right now. If I could point to anything it would be that OPEC might be set off to flood the market and drive down prices like they did in 2014 to 2015. For this reason the U.S. market needs to focus on slow growth as a part of the global market supply.” - McNair

“A socioeconomic crisis or disaster can derail any progress we have made over the last couple years. If this happens, it will take longer to recover.” - Daddabbo