Letter: Develop businesses to make up for shortfalls from oil and gas
The recent article in the Post Independent that covered the declining county oil and gas tax revenue further strengthens the case for diversification of the county economy to other industries.
I have spent decades in the oil and gas business, and it is important to look at some significant business dynamics that are in play in the global oil and gas business beyond potential regulatory developments. A number of oil and gas business analysts are projecting that oil demand will be flat in the developed countries (OECD) and growth will be driven by developing economies, primarily in Asia. The global oil demand growth is projected to peak sometime in the 2030s and then start to drop, primarily as a result of the lowering cost of renewables and electrification of the transportation sector.
At the same time, since the oil price dropped in 2014, it continued to fluctuate at the lower level of $50-60/bbl, despite the significant reductions in exports from Venezuela and Iran and the recent Saudi oil disruption. We have also seen a lot of shareholder pressure on U.S. based shale oil producers to deliver bottom line results considering the high cost of investment. As a result the global supply of oil is expected to be high with prices low and with no indication of a boom time on the horizon. The expression of “lower for longer” coined in the industry in 2014 has changed by some to “lower for ever.” We also see major industry players such as Shell and TOTAL diversifying and making significant investments in renewables and power generation.
The energy transition will not happen overnight, and oil will be part of the global energy mix for a while, but the market factors noted above cannot be ignored. So, while we now have a base tax revenue (even though declining) from the oil business, it is prudent to look for other business development opportunities that will start to make up the shortfall from the oil and gas sector and provide good jobs to our workforce.
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