There's no shortage of spot-on comedy content celebrating the end of the year from videos of people explaining why it sucked for them to Jimmy Kimmel simply pouring vodka in a skip full of everything the last 12 months represented. For many people, 2017 can't come soon enough and at Precise HQ, we're with you guys!
It hasn’t been an easy ride for anyone at any level in our industry. January brought headlines of a drop below $35 pb for ‘the first time since 2004’ – not the last time that happened this year, and more firms cutting significant numbers of workers.
This was a constant theme of the year and led to almost 15,000 more people out of jobs in the US than in 2015 – up to 103,000 according to Challenger, Gray & Christmas. In Nigeria, some workers turned to spiritualists, pastors and herbalists to protect themselves form swathes of job cuts. Since 2014 it’s estimated 350,000 workers have been let go. In the UK, where more than 65,000 jobs were lost, warnings were issued about the impact the cuts were having on mental health, with one charity Choose life urging workers to seek help. The problem was summed up perfectly by its CEO Neil Murray. “It’s a way of life and it takes up such a big chunk of your life..historically the industry has done well and I think a lot of people could not foresee this coming.”
Something we could see coming a mile off was the Doha stalemate in April. Even though pressure for an agreement among OPEC members to curb production was increasing, Iran’s last-minute decision not to attend trapped Saudi who had insisted it was an all or nothing deal. Traders were caught flat-footed and prices sunk further.
The news a few weeks later than Royal Dutch Shell was to exit up to ten countries did nothing to help the continued gloom, at a time when historically we should have been basking in work. Instead, hand-forced by an 80% drop in Q1 profits in 2016 compared to Q1 2015, it furthered a sense of uncertainty about when the slump would end. It also reflected global changes in the world, spurred by the Paris Agreement to move towards lower-carbon fuels. Christian Stadler, professor of strategy at Warwick Business School told ibtime.com, “The volatility of the oil market is no doubt another reason for Shell to be looking to change its strategy in this way, with no immediate signs of recovery.”
A change of strategy was certainly found in Saudi Arabia, where an initial target for renewable energy of 9.5GW by 2023 has been set to help build this sector. That’s quite the jump from the amount that was installed by the end of 2015 – 25MW – and is somewhat explained by a promise in the ‘Vision 2030’ plan to overhaul regulations, allowing private businesses to buy and invest in this sector.
Something cool finally happened in the US at the end of the year (no, not that..). The mayors of 48 major cities issued an open letter to the President-Elect, in which they pledged that they would ‘forge ahead’ with plans to use more renewables, stating that ‘The cost of prevention pales in comparison to cost of inaction, in terms of dollars, property, and human life.” The result – Las Vegas’ city government is now powered entirely by renewable energy. Of course, it helps they’re able to use power generated by the Hoover Dam, and the abundant sunlight that other countries can only dream of! Nevertheless, the Las Vegas Review-Journal reckons the move is saving the city about $5m/yr. It’s just the start – casinos are now following suit.
Renewables aren’t doing so well everywhere. Australia’s chief scientist Alan Finkel slammed the country for its ‘political instability and uncertainty’ and warned it would miss its targets for emission reduction as set out in the Paris Agreement. So ‘Could do better’ will mark the card here for the end of year report.
The ending of year would have been an epic fail of galactic proportions not seen since ‘Titanic’ (when an oversized plank of wood effectively capsized a $200m movie) had it not been for what happened on November 30. Thank the stars for the deal – and it looks like it’s sticking. Saudi is cutting 40% of the total volume – 1.2m bpd, with Iraq reducing output by nearly 20%. Russia led the non-OPEC contingent’s deal that followed a few days later – with a cut of around 300,000 bpd. Traders are happy, Nigeria and Libya are thrilled (they didn’t have to do a thing) and we can finally move into 2017 with a little jump in our steps.
So what to expect in the year of the Rooster, with President Trump to look forward to in January? Reuters reported a warning from the oil historian Daniel Yergin who said, ‘The outcome of the US election adds to the challenges for the oil exporters because it will likely lead to weaker economic growth in an already fragile global economy. And that means additional pressure on oil demand.”
It’s unlikely that we’ll see any resurgence of faith in long-term investments. As Deloitte reports in its annual outlook, the oil price slump wholly altered mindsets in favour of short-term cycles; “$620 billion of projects through 2020 are estimated to have been deferred or cancelled as a result of the downturn, and the appetite for long-term and complex major capital projects has waned, despite a few notable exceptions.”
We remain concerned about the impact on people. We’ve reported on the skills gap and warned about short-termism which thinks laying off people today is a smart move for tomorrow – but doesn’t consider next year. At Precise we know of good people who’ve left the industry in pursuit of security. The question posed by many onlookers is – when the good times come back, will they?
The OPEC deal poses several questions – notably 1. Will it hold? and 2. What are shale producers going to do? They could drive on with production ramps, enjoying cheaper production costs – the leaner meaner machine created by months of OPEC oppression which ultimately failed. You couldn’t blame them for putting two fingers to OPEC but in the long run no-one wins that game.
And that’s the thing. With considerable fear of sounding like we hit the cognac early – with notes of ‘Goodwill to all men’ ringing in our ears – consider the impact that all-out assault had had on oil prices, and what damage layoffs may yet wreak on future energy security. From a macro to a micro level, and with an ultimately selfish aim (if that helps this sound better) – we do better when we’re not taking someone else down.