Since my very earliest days in the Natural Gas business I have been exposed to a couple of notions that had a hollow ring to them from day one. The oil price link drew my most immediate suspicion although it took years until I was able to express my scorn with this antiquated mechanism in the open. In the end I worked for a traditional oil and gas company and did not want to risk getting my butt kicked by superiors.
But there is more, worse, darker, viler stuff out there and one of them is the oil price cycle with the oil price super cycle on top.
You know what I am talking about. Oil prices have largely been cyclical in the past just like most commodities were so far. Oil is a super-commodity so its cycle is powerful as it drags a lot of other stuff in its wake and with it a significant portion of the well-being’s of much of the global population at stake, its watched intensely.
Frankly, if there is one price marker that you know it likely is the one for crude oil (pick your favorite here depending on where you live). There are even a lot of ordinary folks (I am talking about those of us who normally don’t give a hoot about energy and its markets) that have some kind of clue of what’s happening in the oil market – at least superficially. Try that with pork bellies.
As soon as something noteworthy happens in the oil universe, armies of analysts will fan out to show the world that it is all part of some cyclical development that given proper mathematical methods (their methods) could be predicted hence be taken advantage of.
A rant now – did I mention at some point in the past that I still have a bone to pick with the numbers people? Folks, your models are like delving over dead corpses trying to figure out the realm of the living. You might pick a nugget here or there but I believe its more accident rather than real prediction most of the time.
The cycles and the super cycles are the result of the industrial age as we still live it. The foundations of our current economy (parts of it at least as some has already moved on to postindustrial) are built on the notion that mass rules. Industry as we know it today caters to mass needs and not to individuals.
But we all know that this is not really true anymore as customization has become the buzzword of the new age. The internet has amplified this trend to the point where mass becomes increasingly irrelevant as its cool not to have the same thing but to have your own, unique thing.
Before we veer off too deep into the abyss of futuristic think, a quick reality check. Yes, mass is still here and it’s probably still rules. Customization today is more a fad than some real movement outside some very hip circles in Greenwich Village and some other buzzy communities around earth. It’s a trend that has started with a little community of trendsetters but this is how things usually go. Trendsetters blaze a trail and then others follow according to known patterns until the world has morphed into – something else.
In energy – this something else came in the form of the shale revolution in North America. Stop yawning – I know that I have beaten this horse to death but this is so powerful a shift in global fortunes that there is still plenty to cover for many years, trust me on this. The true dimension of shale has not even been grasped by many oil pundits. Many think they can sit tight and wait it out. Many think that it can be influenced by the tools they have employed in the past. They think that they can channel it in the same ways they have channeled other threats but this time it’s different.
Because shale is to oil and gas what 3D printing is to manufacturing. It’s on demand creation of a resource that’s theoretically without bounds. And it’s being done right before our eyes with market response times infinitely faster than anyone though possible in oil and gas.
I am a gas boy and I was trained to be a decadal thinker. When I negotiated the GATE agreement, I knew in 2008 that this agreement would produce full legal and operational effects beyond 2030.
I could also rely on the fact that whatever hit the market would take ages to develop and fester and that there are no really sudden developments but rather shifts that take a long time to evolve – a bit like glaciers. Oil producers would also be able to take comfort in this decelerating effect of the oil planets fabric as they relied in their ability to see possible threats to their business a long time in advance when they build up and gather steam.
That’s over now as shale gas has proven incredible responsiveness to market shifts and if one looks at the nature of shale, one cannot be surprised. This is just in time manufacturing of oil and gas as opposed to decadal planning. Shale is quick to develop, quick to spud, quick to produce and the wells are quick to peak and start a rapid decline if no further work is performed on them.
Rigs are in excess in North America now so if there is short lived price stimulation, counts go up and shale comes to consumers quickly. If price stimulation is not there anymore, the flow subsides within months. That’s split second market responsiveness for the oil and gas folks and they have a hard time dealing with that as it’s so “out of their league”. To them it’s no less frightening than 3d printing will be to Nano second manufacturers – or already is.
This also means that shale will respond to regional developments faster than the world market can notice them taking them out of the picture to myopic planetary traders.
The big, mass energy world is dying and rapidly so. In came the little guys that win the day by delivering rapidly what the market needs, when it needs it and as much as it needs. Base-load is going to linger for a long while but make no mistake: this is the kind of genie that once it’s out of the bottle will never go back in and that also keeps morphing so quick, you won’t be able to digest your breakfast properly between shifts occurring.
2015 is the biggest shakeout of oil and gas workforce I have seen as part of the industry. There will be more of that as the mass monsters will need to adapt or die. And who says that an IOC/NOC cannot be brought to its knees by a small upstart? Remember Microsoft being sledgehammered by midget Google? That’s not long ago. Remember Kodak?
Kiss those cycles and all the spreadsheets, business plans and whatever else you have in terms of planning tools good bye. The fun has just about started. Energy goes real weird and you know the saying.
When the going gets weird – the weird gets going.
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