We need long term thinking!


Following the global energy market day-byday is confusing! Are we stuck in a rut, is the market bearish or bullish and does anyone really know where it is headed? Different headlines move us in different directions, but, for anyone who has as a modest understanding of the history of such markets, one knows that extreme changes happen. Furthermore, there will never be a true global balance and the cyclical trends, no matter how challenging they may be for one sector, will benefit another.

Thinking back to July 2008, as the oil price gathered momentum, with analysts forecasting an oil price $200 was on its way. There had been lots of excitement when the $100 level had been passed and maintained, and they expected it to run on to $200 and with a possibility to keep going higher. What rubbish, and I said so at the time! Is it credible to assume that a commodity price can soar, way above the rate of any other, and the world will continue to pay? It reached $147 and then the big collapse began. At a certain high level, people stop paying and at a corresponding low level, they resume paying.

From late 2009, when the oil gathered momentum again and stabilised over the $100 level, OPEC changed its tune and declared that the price was right for both consumers and producers. It suited them to say that, as consumers were still paying. A terrific time for producing nations and oil companies but challenging for consumers. But, with higher prices, alternative fuels move in, followed by energy conservation and ultimately demand destruction. Six years on and the position has completely reversed – today the low oil price is a boon for consumers but very challenging for producers and oil companies.

So, do we think short term and long term? It seems to me that operators look at where they are today and plan accordingly. The oil industry is smartening up, cutting costs and looking for improved efficiency and with oil prices around the $50 mark, paying more attention to costs. Nevertheless, whenever stress hits a particular sector, the shareholders smarten up and are the first to pull out, leaving the operators vulnerable.

Looking back to the OPEC Seminar in June when we were told that oil demand will increase by 18mbpd by 2030. So, if this is the fact, why should investment be cut now? OPEC has maintained short-term thinking over the last five years, cashed in on the higher oil prices, without acknowledging the implications, and is now suffering the lower price. Saudi perhaps has the reserves to hold on but many of the others have not invested in their infrastructures and are not prepared for today, let alone tomorrow.

At the Seminar, Rex Tillerson, the CEO of Exxon Mobil, emphasised that new technologies would play a big role in future development but would need to be supported by policy changes, as we are seeing in the UK over fracking. He also said that companies like his had to take the risk to gain the reward and take the long term view to deliver the energy, whatever the cost. This is not something we are hearing much of just now!

We have seen dramatic peaks and troughs before in markets and with global economic recovery and development in much of the world suppressed by high oil prices in recent years, the lower price is certainly easing the consuming world back up, while, at the same time, one hopes that some energy supply companies are looking to the future and planning their investment strategy accordingly. There will be a turnaround but probably not in the short term, so, long term thinking must be maintained across all sectors.

Written By- John Hall

Alfa Energy Group

Alfa Energy Group, an Edison Energy company, is an international energy, sustainability and technology consultant partner with 250 employees over 3 international locations. For over 25 years, Alfa has been servicing its clients’ needs through energy and water management, sustainability, and compliance consulting, and an intuitive ecosystem of user-driven energy, water, and carbon management software platforms. With coveted awards, an international industry-wide recognition, and clever simple solutions, today Alfa is partnering with clients to establish and deliver pivotal net zero strategies. Through smart energy management, the expertise and diligence of its people, transparent processes, and data management, Alfa continues to lead through its recognised gold standard of service delivery.