Oil, gas and chemicals executives see higher oil and natural gas prices on the horizon, but new findings from Deloitte's "2018 Oil, Gas and Chemicals Executive" survey reveal the industry has varying expectations for what the anticipated price recovery will bring.
In contrast to last year's survey, optimism appears to be growing for the return of a more favorable business environment. The rise in commodity prices, along with a stronger economic context, has spurred confidence, but the benefits of a further price recovery are not anticipated to be homogenous for the industry, the survey noted. Segments less impacted by the downturn, including downstream and chemicals, have reportedly been able to continue to invest for growth and could realize advantages more quickly, while upstream and midstream noted they must first finish working through their recovery strategies.
"The industry seems much better off than a year ago," said John England, partner, Oil, Gas & Chemicals, Deloitte & Touche LLP. "Positive sentiments have emerged from all sectors, but the real bright spot is in the downstream and chemical sectors. Most upstream executives surveyed see better days ahead, but are managing more with caution as they work through growing pipeline constraints, mounting geopolitical tensions and rising oil prices that could also push up costs. With growth and recovery top of mind, digital technologies could become critically important for productivity and profitability and should serve as a lever to help mitigate rising costs brought about by rising oil prices."
Key survey findings include:
- A majority (72 percent) of respondents expect West Texas Intermediate (WTI) crude to average $70 or more per barrel in 2020. Even more bullish and in sharp contrast to last year's findings, 41 percent of the respondents expect WTI prices to average $80 or more per barrel in 2020, up only 5 percent from the prior year.
- Notably, 2020 could be the year the lid is lifted on prices for Henry Hub natural gas. More than half (54 percent) expect Henry Hub natural gas will average $3.50 or more per million British thermal units (mmbtu), with a majority of those (35 percent) expecting $4 or more per mmbtu.
- More than half of executives surveyed from each of the four sectors -- upstream, midstream, downstream and chemicals -- expect to increase capital expenditures in the coming year. The downstream and chemicals sectors see the highest confidence in capital spend, with 64 percent and 67 percent of those respondents, respectively, expecting an increase in capital.
- For upstream companies, digital solutions are now deemed equally impactful at improving cost structures as increasing well productivity.
- Most downstream companies surveyed have a positive outlook with modest growth and increasing margins, exports and capital expenditures.
- Refiners expect a strong 2019 with average expected margins of $15.39, up from 2017's $13.20/bbl.
- Downstream players seem split on what challenges they face. The biggest challenges noted by respondents were environmental issues (38 percent), costs (34 percent) and permitting issues (31 percent).
- Only a small portion (28 percent) of respondents noted fuel specification or biofuel mandates as a challenge.
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