As of 2017, US is also the worlds largest oil & gas consuming nation with approximately 913.3 million metric tons of oil and 27.1 trillion cubic feet of natural gas consumption respectively
- Definition / Scope
- Market Overview
- Market Trends
- Industry Challenges
- Technology Trends
- Pricing Trends
- Regulatory Trends
- Other Key Market Trends
- Market Size and Forecast
- Market Outlook
- Technology Roadmap
- Distribution Chain Analysis
- Competitive Factors
- Key Market Players
- Strategic Conclusion
Definition / Scope
The energy resources such as oil, natural gas, coal, nuclear, wind, solar, and biomass contained in the North American cluster i.e. Canada, Mexico, and the United States create a prospective future for all three countries if combined.
However at present, with the region’s stable legal system, liberalized trading environment, cross border infrastructure, high-tech industries, and educated and competitive labor force the synergy effect is definitely created.
US seeks to use energy to drive economic growth, job creation, and international competitiveness. The US oil & gas supply surge may get a lot of attention, but the growth in jobs and America’s real competitive advantage exists in renewables and other advanced technologies as well.
US particularly remains in a competitive position when the energy sector is concerned as the demand surging from the developing economies are fixated in not only fossil-based energy resources but in distributed solar, wind, storage, micro grids, and a suite of other technologies and services that US companies have to offer. It is important to understand the value of energy diplomacy.
The US undoubtedly has an energy advantage at its finger tips that can and should be harnessed as much as possible, US has negotiated with other countries using energy as a political tool rather than as a weapon.
There is a direct relationship between US oil & gas industry and geopolitics which in turn makes contribution to global and U.S. energy security. US oil & gas industry has some significant benefits as it augments global energy security in at least three important ways.
First, it provides additional supply to a global market that had been tight for several years. Second, US tight oil adds a new kind of oil supply to the market that takes months, rather than years to ramp up from investment to production i.e. also known as short cycle oil and finally, the new oil and gas supply source i.e. ‘shale’ has added a sense of resource optimism to the market.
These alternative oil & gas are making US more cost-competitive with more variety and options for customers in terms of energy due to abundance of supply.
- The oil and gas industry are among the largest industries worldwide that contribute substantial value to the country’s economy. The sector involves several activities such as exploration, extraction, refining, transport, and marketing of these commodities. There are various other industries which are supported by this industry as they consume high amount either in form of energy fuels or raw materials for chemical products.
- The history of oil & gas production in US dates back to 1850.
- As of 2017, US is the world’s ninth-largest oil reserves and fifth-largest natural gas reserves.
- As of 2017, US is also the worlds largest oil & gas consuming nation with approximately 913.3 million metric tons of oil and 27.1 trillion cubic feet of natural gas consumption respectively.
- As of 2017, US has produced 571 million metric tons of oil and 734.5 billion cubic meters of natural gas.
- Within US, Texas is one of the principal oil producing state. Within Texas, the Eagle Ford Shale Play, is one of the most aggressively drilled targets for unconventional oil and gas. As noted in early 2018, the region was encountered with about 67 oil rigs. Following Texas is Pennsylvania, the second-largest gas producing state contains the Marcellus Shale Area along with West Virginia, which also has the highest penetration of oil rigs in the entire country.
- Due to the relatively high cost of oil and gas production in the US ,in 2018, due to the technological advances in oil industry, the US has turned towards Shale oil which now account almost half of the entire crude oil production in US.
- As of 2017, US became the world’s largest oil producer by generating 2 million barrels per day more than Saudi Arabia and directly posing competition to the country.
- According to the US Energy Information Administration (EIA), natural gas and oil will account for nearly 70% of the country’s energy use by 2050, while the top 10 largest oil and gas companies in the USA are expected to continue leading the market in the near future.
- As of 2017, US stands at 9th position accounting 2.9% in global share of oil & gas production in terms of quantity. The top three countries with highest share were Venzuela, Saudi Arabia, and Canada respectively.
- As of 2017, crude oil exports from the US averaged over 1 million b/d while finished product and liquid exports averaged over 5 million b/d, and natural gas exports were over 3 trillion cubic feet respectively.
Unleashing new record wells
One of the main drivers of growth in oil & gas industry is the continuous discovery and utilization of the source wells in various parts of US. For instance, Permian Baisn in West Texas and Southwest New Mexico has the capacity to produce 3.3 million barrels of oil each day and is growing tremendously with a scope to produce 800,000 BPD annually.
Similarly, the fast pace growth of this basin is accompanied by advances in drilling technologies. Similarly, there are two other notable names that are unleashing record setting wells such as by Devon energy and Marathon oil.
Devon Energy has come up with two-well pad which is also likely to grow the US oil production at a rate of 16%. Similarly, Marathon Oil announced two wells in Bakken shale of North Dakota with both producing more than 3,000 BPD in their first month on line.
In US gas segment several companies are contributing the growth. For instance EQT Corp, the nation’s largest gas producer is set to grow natural gas volumes by 17% fueled primarily by its position in core of Marcellus shale. The gas producer is likely to serve a major role in increasing overall compound output from 10% to 15% in 2019-2023 period.
Also due to the discovery of shale gas in parts of US, it is able to oversupply and much of that supply is likely to be driven to nearby counties like Mexico another global markets through LNG which has US on a direction to become the 3rd largest LNG exporter in world by 2020.
America’s gas production is also growing at a healthy clip. According to the EIA, output should be up 10.5% this year. The agency anticipates another 4% rise in 2019, while other analysts expect the country’s gas output to increase 24% over the next five years. Already the world’s leading gas producer, the U.S. is on pace to extend its dominance in the coming years.
Besides there are generic drivers that are most likely to drive growth in the Oil & Gas Industry in the coming days:
Increasing Exploration of Unconventional Gas Resources
In recent years, the diminishing conventional gas sources have resulted in a shift to unconventional sources. The US energy sector seems to leverage these unconventional gas sources mainly for two reasons: first, to reduce the carbon footprint of conventional sources and become more independent by increasing an alternative source.
According to a report published by Deloitte, considering the micro trend from 2010 to 2040 US is likely to increase its unconventional source from 61% to 79% respectively. By 2020, US is likely to become net exporter in this segment.
Rapid Technological Advancements
As per a survey report conducted by PWC among Oil & Gas executives of nearly 38 countries, Innovation and digital transformation is considered as two of the key growth drivers in years to come where 18% are likely to strengthen innovation to capitalize on new opportunities.
Some of the notable examples of technological advances being encountered in oilfield and gas market in US include adoption of various types of drilling techniques such as horizontal and directional drilling.
Operating cost of a refinery is very huge and in many instances, this will affect adversely on offshore operations. The revenue that the energy sector derives is high but due to technological advancements and new exploration projects, the costs are also likely to stabilize.
For instance, the new discovery of shale oil & gas is likely to reduce both environmental consequences and also the cost of extraction.
US imports substantial amount of oil & natural gas despite of rising level of exports. US is one of the major economies that is involved highly in the global energy sector and continues to experience the impact of oil price changes in increasingly complex ways.
In addition to the price shocks, US is also highly exposed to the oil & gas operational disruptions. For instance, as US is more prone to hurricane, it is important not to forget the oil, gas and electricity supply disruptions that resulted from Hurricanes Harvey and Irma in 2017.
Hurricane Harvey reduced gross inputs to Gulf Coast refiners by 3.2 million barrels per day, while Hurricane Irma cut power to nearly two thirds of Florida’s electricity customers and led to higher gasoline prices.
Even though the abundant supply of domestic oil and natural gas is not a direct representation for security – delivery systems are needed to get resources from the point of production to the point of consumption.
Bottlenecks in pipeline contracting, sighting, permitting, and construction continues to impede rapidly growing oil and gas production in the Permian Basin in Texas from reaching end markets. While this bottleneck is temporary, it once again illustrates the strategic importance of midstream and delivery infrastructure towards realizing the full commercial and strategic value of these resources.
End Use Technologies such as battery science are evolving rapidly at present times. Automakers such as Tesla and other conventional brands to develop battery electric vehicles that has been gaining traction among customers in comparison to the traditional vehicles with combustion engines.
These electric cars have zero emission while driving which is why countries like Netherlands and Norway have already planned incorporate only zero emission vehicles in their cities by 2025. The UK and France plan to halt sales of new oil-fueled cars by 2040. China is considering to ban oil-fueled cars sales. The same trend is likely to be followed in US.
All these factors are likely to exert immense pressure upon the oil & gas industries worldwide as the one of the major support sector driving the conventional oil & gas is automobile.
Yet the industry faces considerable headwinds from external challenges to its future. They include:
- Continued negative public perceptions of the industry have been exacerbated by fears of its contributions to greenhouse gas emissions and global warming. The alternative Natural gas is less unpopular than oil at present context.
- Geopolitics seem unusually fragile today, and wars are raging close to major oil and gas resources.
The major technology trends that are being encountered in the Oil & gas sector of USA are follows:
The reengineering technology trend offers the American oil and gas company CIOs and their teams a roadmap for fundamentally overhauling IT, from the top down and the bottom up, to drive business growth and create enterprise value.
Oil & gas companies are identified with using latest technologies such as cloud and automation. For example, by integrating workflow automation, one company was able to spin up a new, cloud-based SAP test environment in just 14 minutes reduction from 2 week period.
Humans and machines in one loop
The trend gives oil & gas companies an opportunity to reimagine a new model whereby the humans and machines become co-workers, complementing and enhancing each other’s efforts in a combined digital workplace.
Some American oil & gas companies have piloted the use of robots to pick, pack, and ship product from the shop floor in the facilities.
The idea that digital reality is moving down the path to full commercialization and industrialization seems like a reasonable vision of the future.
Early adopters of these technologies are Oil& gas companies that are laying the groundwork for broader adoption of the digital reality trend; most companies in US are focusing on sensor-based technology to track assets in real time.
In another industry example of applied digital reality, a US-based refining company wanting to reduce the operating cost and order delivery time for its warehouse operations combined wearables and AR to implement “vision picking” to enable hands-free order picking.
Blockchain technologies are on a clear path toward broad adoption and are causing disruption across all major industries. Oil & gas companies in US are beginning to standardizing on the technology, talent, and platforms that will drive future blockchain initiatives and opportunities; among them, integrating and coordinating multiple blockchain within a single value chain.
Key blockchain opportunity areas in oil and gas are land administration, supply chain, finance, inventory operations, and marketing. For example, American oil and gas companies have started piloting blockchain-powered “smart contracts”- self-verifying and self-executing agreements that function autonomously when engaging with vendors and engineering, procurement, and construction (EPC) companies.
As the API imperative trend gains momentum, further innovative approaches are emerging for contracting, pricing, servicing, and even marketing this technology.
For example, an US based oil and gas major with operations in over 70 countries was facing challenges in its lubes business because the company’s IT systems and processes did not support supply chain planning or demand forecasting.
The existing forecasting led to huge demand-supply gaps, high stock levels at the plant and warehouses, frequent stock-outs at the demand end, and overproduction at plants due to very little visibility into real-time demand.
The company developed a demand-sensing solution that integrates internal data and actual sales data. In less than one year, the new system generated a 30% reduction in forecasting error and a 30% reduction in safety stock.
- According to CNBC, the oil prices of international benchmarks such as UK Brent and WTI are likely to increase in 2019. The risk high case scenario could mainly be driven by geopolitical tensions and large scale disruptions to oil supply from key oil producing countries such as Iran and Venezuela in particular. Brent could average around $78.75 next and WTI could reach to $58.25 a barrel.
- According to Statista, as of 2017 the statistics presented for the gasoline prices around the world, US had one of the cheapest price totaling an average of $2.99 per gallon. Comparatively, the prices of gasoline was as highest in Norway at $7.82 per gallon and as low as $0.03 per gallon in Venezuela. US is also one of the biggest consumers of gasoline on a per capita basis, with approximately 1.22 gallons of gas per person daily.
- Among the Gas prices in selected countries worldwide, the price in US was considered cheaper to that of all European countries in Asian, Latin American and European region.
- Among the types, finished motor gasoline is the most commonly used fuel in the US transportation sector. As per the statistics, 2012 was the peak year for gasoline prices with oil price reaching above 3 dollar mark whereas the trend suggests that prices are dipping as 2015 marked the year of all time low price, and is continuously decreasing every year up till 2018.
- Basically two types of crude oil are consumed in US where,Brent crude oil is the benchmark named after the exploration side in the Brent oilfield in the North Sea. It is a light crude oil but slightly heavier than West Texas Intermediate. As of 2017, the price stood at $54.15 per barrel and is forecasted to increase to $71.4 per barrel by the end of 2018.
- West-Texas Intermediate (WTI) oil- WTI is a grade of crude oil also known as “Texas light sweet.” In 2017 the average annual price of one barrel of West Texas Intermediate crude oil was $67.28 dollars. Whereas the average domestic price of the crude oil in US stood at $48 per barrel in 2017.
U.S. Regulation of Oil and Gas Operations
Federal, state, and local governments each regulate various facets of oil and gas operations. The oil & gas regulation in US is very complex as the decision depends upon federal regulation and state laws.
As a matter of fact, most of the drilling and production is regulated by the respective states. Whereas, federal laws govern general requirements such as safeguard water and air quality and worker safety, as well as exploration and production.
The body responsible to set standards and create guidelines for oil & gas drilling and production operation is known as Interstate Oil & Gas Compact Commission (IOGCC), which formed in 1935.
To understand the regulation of the industry more precisely, the following segments are to be considered:
State Regulation of Exploration and Production
Exploration and production on state and private land are regulated by each of the 33 oil- and gas-producing states. Environmentally focused regulations have become increasingly prominent over time, especially since the 1970s. State-regulated activities include seismic and other geophysical surveys, leasing, drilling, hydraulic fracturing, oil and gas production among others.
Federal Regulation of Exploration and Production
- On Non-Federal Land
The federal role in regulating exploration and production primarily focuses on environmental protection. The Environmental Protection Agency (EPA) sets standards on drinking water and air quality under the authority of the Clean Air Act, the Clean Water Act, and the Safe Drinking Water Act.
- On Federal Land (Onshore)
The Bureau of Land Management (BLM) has authority over almost all leasing, exploration, development, and production of oil and gas on federal and Native American lands. As of 2018, some federal drilling and production regulations enacted, revised, or proposed since 2008 are being re-evaluated or rescinded by the current Administration.
The federal government regulates offshore exploration and production for the Outer Continental Shelf (OCS), The Bureau of Ocean Energy Management (BOEM) manages federal OCS leasing programs, conducts resource assessments, and licenses seismic surveys. The Bureau of Safety and Environmental Enforcement (BSEE) regulates all OCS oil and gas drilling and production.
Other Key Market Trends
The five key trends that are currently dominant in the US energy industry are follows:
- Recovery of prices: 2018 has been proven the landmark year for the reduction in the commodity prices followed by good news for the oil and gas sector. The challenge from here on will be the sustainable profitability and returns. Similarly, costs are likely to rise and due to intense competition, the question arises whether the returns will be generated enough through commodity price cycles. The players in the industry at present have placed their two fold focus on first, adopting a disciplined approach to capital investment decisions and second, leveraging digital technologies to achieve higher capital productivity.
- Expansion of oil sources: Building and expanding pipelines, processing facilities, import and export terminals, storage facilities is becoming vital to the value chain of businesses involved in energy industry. Remarkable growth in the natural gas production has been encountered in various parts of US. For instance, natural gas production in the Marcellus Basin has often outstripped pipeline capacity, depressing prices for producers. Moreover, the US is now a major player in global LNG markets, with two facilities in operation, at Sabine Pass and Cove Point, and four more due to start up in 2019.
- Alternative oil & gas: The gas extracted from the Marcellus and Permian Basins are moderately priced and is enabling very material long-term change in US and global energy markets. Natural gas continues to grow as a source of lower-carbon power generation here and abroad. The wave of new investment in petrochemical facilities would not be possible without the growing US natural gas and NGL supply. This is expected to shape global prices, trade flows, and business models and give strong vote of confidence in the viability of North American gas supply.
- Sustainability efforts: Energy and chemicals companies are not newcomers to the sustainability agenda. Major oil, gas and chemicals companies particularly in US are getting enough support from the government and are making increasingly sizable investments on innovative technologies that bring renewable energy to consumers and to reduce their own environmental and carbon footprints. The Environmental Partnership, is a private industry-led initiative brought largest oil and gas companies in US under a common roof to work together and continuously counter adverse environmental impacts. As a part of the Programme, innovative research, technology and operational practices are being conducted in the US oil and gas industry which is also expected to fuel the market growth for advancements in the near future.
Market Size and Forecast
- Crude Oil market size
EIA estimates that US crude oil production averaged 10.9 million billion barrels per day in 2018, up 1.6 million billion per day from 2017, surpassing the previous record level of annual production set in 1970.
EIA forecasts total US crude oil production to average 12.1 million billion per day in 2019, up 1.1 million billion barrels per day from 2018 and reach 14 billion barrels per day by 2020.
- Gas market size
According to Deloitte, the gas production in US is likely to reach 27 trillion cubic feet by 2020 and is increasing annually at a rate of 2-3%.
- Shale Oil & gas market size and forecast
First, U.S. production of shale oil and alternative fuels, such as ethanol, began increasing in 2015. As per EIA, the US fuel production averaged 11.5 million b/d in November 2018 which was also all time high since last recorded in 1970.
Further, production averaged 9.4 million b/d in 2017, and 10.9 million b/d in 2018. The average will rise to a record of 12.1 million b/d in 2019 and 2020. Shale will make up 65% of US oil production by 2020.
- By 2023 it is projected that US will be taken over by China and India in terms of the imports made in oil & gas. Additionally, regarding the exports, US country has shipped as much as 2 million barrels a day as of 2018 whereas it could be able to ship as much as 5 million barrels a day by 2023, as it is building out new pipelines and export terminals at present.
- As of 2018, In Asia, nations like China are refining more crude oil into gasoline at home, oil imports are expected to grow by 3.5 million barrels a day through 2023.
- The outlook of 2018 present’s possibility for the demand for oil & gas is likely to plummet by 6.9 million barrels a day to 104.7 million barrels a day. About half of that growth is projected to come from China and India. Whereas by 2023, the growth is likely to descend to about 1 million barrels a day by 2023.
- Some of the major headwinds include rising concerns for fuel efficiency in US followed by shift towards electric buses. China has also addressed sustainability issues by turning towards natural-gas fueled trucks, and purchases of battery-powered passenger cars. Thus, biggest demand is going to be arrive from the petrochemicals industry, which likely to account for a quarter of oil demand growth over (2018-2023) period.
- The global oil & gas market has rebounded since the 14-member OPEC cartel partnered with Russia and other producer nations to cut output in 2017. The surge in American oil industry has been mainly reinforced by several major shale fields, where drillers are using advanced technology to squeeze oil and natural gas from rock formations.
- According to IEA, US will pump 17 million barrels a day of crude oil, condensates and natural gas liquids, easily shielding its title as the world’s top producer of petroleum products. That’s up from 13.2 million barrels a day in 2017. Comparatively, OPEC will also increase capacity by 7.5 million barrels a day up from current capacity by 2023. Overall, demand capacity is likely to reach 107 million barrels a day and US will account 60% of the global increase.
Distribution Chain Analysis
90% of US. oil production flows in from broadly eight states: Texas, North Dakota, California, Alaska, New Mexico, Oklahoma, Colorado and Wyoming.
- At present Texas is the epi-center of the oil production in US with 27 operable refineries, more than any state. It accounts for 36% of total output, and the state has almost one-third of all proven oil reserves accounting 10.5 billion barrels.
- With oil production increasing by 1,000% between 2003 and 2015, North Dakota has 5.7 billion barrels of proven reserves. California ranked third in the nation in crude oil production with over 200 million barrels in 2014. California has 2.9 billion in proven reserves.
- While the trend suggests sinking oil production has in response to enhanced exploration and drilling in the plains, Alaska still remains one of the largest oil-producing states with 2.9 billion barrels in reserve.
- The small city of Oklahama is the fifth largest oil producer and is home to the world’s largest oil storage facility, where one-fifth of the country’s commercial crude oil is stored.
- With 1.2 billion barrels in reserve, oil production is clearly one of the most important drivers of the New Mexico state’s economy.
- Colorado accounts about one of every 50 barrels of U.S. output. Colorado has oil reserves of 896 million barrels which is expected to reach 2 billion in near future as asserted by the industry experts.
- Finally Wyoming is another emerging region with 723 million barrels in reserve.
The United States has a long tradition of oil and gas companies.Within, the top 10 largest oil & gas producing companies in US, large corporations such as Exxon Mobil, Conoco Phillips, and Chevron are not just domestically renowned but are in fact global leaders generating a large portion of their income by selling overseas.
- ExxonMobil, for example, is a direct descendant of Rockefeller’s Standard Oil Company. It is one successful example in oil industry where the company has been world’s largest oil producing in terms of revenues as it has been grossing 400 billion periodically since past few years. In 2018, it was also one of the companies with 10th highest market capitalization.
- Chevron has a unique business model whereby it not only refines, markets and distributes transportation fuels and lubricants, manufactures and sells petrochemicals and additives but also develops and deploys technologies that enhance business value to its operations. It posted a revenue of $3.4 billion in second quarter of 2018. In January 2018, the company announced an integral oil discovery at the Ballymore prospect in the Deep-water Gulf of Mexico.
- EOG Resource is one of the largest independent crude oil and natural gas producing companies in the USA accounting 56% petroleum, 20% natural gas liquids and 24% natural gas reserves in US alone. In 2017, the company was able to increase its US based oil production by 20% while reducing debt, paying out dividends and generating free cash flow.
- As of 2018 TETRA Technologies Inc. and Halliburton partnered together for a global joint marketing and development agreement. The collaborative agreement is expected to foster the company’s and development of oil and gas drilling and completion fluids based operations based on their respective technologies and resource capabilities.
- Anadarko Petroleum is one of a leading premier American petroleum and natural gas exploration and production company, with production capabilities peaking at nearly 672 thousand barrels of oil per day. At the end of 2017, the company was accounted to have highest proven reserve of 1.439 billion barrels of oil equivalent, with 46% of it amounting to oil reserves, 37% natural gas and 17% natural gas liquids. The company has also benefitted by the Ghana oil sales volume that increased by 48% year-over-year, largely driven by a full year of production from the TEN field.
Key Market Players
- According to the market value, as of 2018 the 10 largest oil & gas producing companies in US are follows:
- Exxon Mobil
- EOG Resources
- Occidental Petroleum
- Phillips 66
- Valero Energy
- Anadarko Petroleum
- Marathon Petroleum
Although, US seems to be energy-advantaged the competitiveness and betterment of US within the energy industry can be gained by USA’s time-honored institutions and provisions that has continued to support it over last several decades.
US has a fair number of vulnerabilities such as oil & gas supply disruptions, physical infrastructure protection, and cyber threats. The US needs to build mechanisms to protect the industry against these disruptions.
Finally, it should devise a strategy for an energy sector that is becoming more and more dependent on IOT which in turn exposes it to higher cyber related risks.