SAN ANTONIO—This has been “a year of recovery” for the oil and gas business. The current trends have created “positives for global growth” in future years, according to John England, partner and vice chairman for the U.S. oil and gas practice of Deloitte during a wide-ranging review of the global economy in general and the oil and gas business in particular at Hart Energy’s DUG Eagle Ford conference and exhibition.

“If you’re like me, I was impacted pretty heavily by [Hurricane] Harvey last year,” the Houston-based executive said. “A lot of people in this area are recovering from a natural disaster, or from an epic downturn in our industry. We’ve all been in recovery mode; 2018 is certainly that year.”

There are indications that the future will be better, he said, noting the stock market hit record highs the same day as his presentation (Sept. 20), while crude oil prices continue to climb. The benchmark Brent crude oil price has climbed to nearly $80/bbl this year while West Texas Intermediate has topped $71/bbl.

But offsetting those positives “are trends we didn’t expect.” One of particular concern to England is unsettled currency markets. Why should the industry care about currency exchange rates when its products, worldwide are bought and sold in dollars?

“Because demand growth primarily comes from emerging markets and it’s important that emerging markets have stable economies,” he said. “That’s critical to the overall demand that is creating this recovery that we have had.”

Another offset “is this trade war that’s going on,” England added. “That hits us on two fronts. One is it puts a wrench in the overall global economy. Global trade is critical to making the global economy—and the U.S. economy—work. When there is a slowdown, it hurts. Second is the direct impact on a lot of things in our industry. It makes many of the materials and services we need to buy more expensive.”

Of particular concern is China’s proposed 10% tariff on U.S.-produced LNG, which could go as high as 25%. That may not be a big concern now, given China buys a small slice of American LNG production, “but we’re looking to China to underpin a lot of the future Gulf Coast LNG terminals. So it could be a big deal going forward as it makes it harder to get those plants built.”

Also, energy stocks “have not followed the path upward” as the stock market, overall, soared this year. That’s due to “a lack of confidence by the public” about the ability of oil and gas players to be consistently profitable. “They’re in a ‘show me’ phase,” he added.

If the industry’s current economic recovery has been hard, there’s a reason.

“The downturn we just went through was not like any downturn we’ve ever had before,” England said. Industry old timers may shrug it off as just part of the industry’s cycle but this industry collapse was special.

“It was longer than any previous downturn. The time to the bottom was 404 days, longer than any previous downturn. And we’re still not back to the peak of over $100 [per barrel]. So it was really unique,” England explained.

He pointed to four impacts of that downturn:

  • “A significant,” two-year drop in capex spending globally;
  • A change in the focus of capital to short-cycle projects, “but ultimately there have to be major capital projects to assure supply for the future;”
  • The loss of talent as 400,000 energy industry jobs disappeared. “That’s a brain drain that we will feel the impact of for years to come;” and
  • Oddly, England’s fourth point “is a good thing, it sparked a digital revolution” in oil and gas.

Looking ahead, England said excess costs have been wrung out of the business, which will help it sustain profitability in future years. In particular, greater automation will reduce staffing needs—a key issue given many talented employees will not be back.

“But drawing all this together, the overall macroeconomic condition is good,” England said. In particular, “the LNG markets are developing nicely in the long run.” Big-capital projects will need to come back, he added, in particular deepwater offshore projects that will provide necessary reserves to sustain world economic growth.