To quote Major League Baseball legend Yogi Berra, “It’s like déjà vu all over again.” A number of prevailing factors pre-ceding a dramatic drop in oil prices in 1986 repeated 30 years later, and energy professionals can’t help but notice.
Similarities between the two eras include a drop in high oil prices, Kinder Morgan Terminals Director of Business Development Earl Crochet noted.
“‘High’ is a relative term, but prices suddenly began to fall. From 1985 through 1986, prices dropped 67 percent,” Crochet said, addressing the Plant Maintenance, Inspection and Engineering Society Expo & Forum held recently in Pasadena, Texas. “These are huge, huge drops.”
Falling oil prices led to companies laying off workers in large numbers in 1986; in 2014, as many as 100,000 people who worked either directly or indirectly in the oil business within the last year also lost their jobs. In the Houston market, approximately 1 in 7 people were affected, Crochet said.
The price of a gallon of gasoline also dropped drastically in both eras.
“If you don’t work in the oil industry, that’s a really, really good thing,” Crochet said. “If you do work in the oil industry, that may or may not be a good thing.”
Despite a number of undeniable similarities, there are also a number of significant differences between 1986 and 2014.
One, Crochet said, includes an upsurge of information technology.
“The average individual didn’t even have a cell phone back then. There was no Internet,” Crochet said. “When you needed something in 1985 or 1986, you either went to the guy in the cube next to you or in the office down the hall, or you pulled it out of a book. When you got government statistics, last year’s data would have been printed mid-next year.”
Hydraulic fracturing and its accompanying increased technological efficiency have been other major game changers, Crochet said.
“Fracking has been around for a long time, but fracking with horizontal drilling is relatively new,” he said. “All of this technology goes hand-in-hand. When I started in the pipeline business, you couldn’t directional drill. Now it’s no problem. You can drill out a channel, make a right turn, make a left, go up 30 degrees and make another right. You couldn’t do that 30 years ago.”
Geopolitical influences that were not factors in the 1980s, including efforts to address climate change and develop renewable sources of energy, have come into play as well.
Comparing the mid-1980s to today, Crochet singled out the oil and gas industry’s development of shale as perhaps the greatest positive economic influencer.
“In 2008, how much shale was coming from Eagle Ford? Zero. In six years, we’ve gone from zero to a million barrels. That’s pretty phenomenal,” he said.
Crochet admitted some industries have benefitted from falling oil prices, including companies that spend a lot in transportation and fuel; hotels, cruises and theme parks; and many U.S. consumers.
“Again, if you’re not in the oil business, this is a great time,” he said.
Airlines have also benefitted from falling oil prices, though airplane manufacturers have not.
“With cheaper jet fuel, you’re not going to spend money building a more efficient plane, you’re just going to keep running the one you’ve got,” Crochet said. “Boeing and Airbus have lost billions of dollars in orders.”
According to the U.S. Energy Information Administration, West Texas Intermediate crude is expected to average $32 per barrel in 2015, bouncing back to $70 per barrel in 2016.
Despite the advantage of lessons learned in the 1980s, Crochet hesitated predicting future WTI prices. Nonetheless, he wryly offered a wide range of “somewhere between $10 and $200.”
“Even a blind hog finds an acorn once in a while,” he concluded.
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