Wednesday | 11 October, 2017 | 9:52 am


By Gretchen Salois

Holding pattern // Supply chain anticipates extraction activities will rise



October 2017 - World energy consumption is expected to grow by 28 percent between 2015 and 2040, according to the U.S. Energy Information Administration’s latest International Energy Outlook 2017 report. Fuel sources, including petroleum and other liquids, natural gas, renewables and nuclear, are projected to grow. Only coal demand is likely to remain flat.

Low activity levels in 2014 and 2015 in the oil and gas sector affected 2016 costs.

Energy producers depend on stable commodity prices to drive drilling activity. “While commodity prices are better today than a year ago, many of the E&P companies are still not making the money and there [continues to be concern] about the consistency of the price today,” says Paul Vivian, partner at Preston Pipe, a Ballwin, Missouri-based consultancy.

Vivian says drilling activity is starting to level off but there is a risk that newfound activity could decline. “Today those costs are rising. At some point, the drillers will have to pay the new price.”

Current activity levels will continue apace until demand increases or commodity pricing moves higher. “We expect a series of ups and downs,” Vivian says. “Of course, if the price moves without corresponding demand, the price will ultimately fall after the market is oversupplied.” He expects 2018 to be yet another transition year.

Renewable sources

Vivian predicts a gradual impact on oil and gas from alternative energy sources. “Today not much, but soon,” Vivian says of alternative power sources. Total supply numbers, in terms of market share, are so percent-for-percent interchangeable, that we fear any change in the highly subsidized renewables could impact the final result,” Vivian notes. “As costs come down and hydrocarbon costs escalate, things will come to a head.”

He advises a combined cycle of solar and natural gas to generate electricity. “When we see plants like that being built, then we will know the impact has arrived,” he says.

Dan Whitten, vice president of communications for the Solar Energy Industries Association (SEIA), believes solar power in particular, will have an impact sooner than later. “Solar is hardly being held back.” Last year, he says, solar power was the largest source of new electricity generation in the United States.

The biggest threat facing solar power is the U.S. International Trade Commission. A Section 201 trade petition filed “by two bankrupt, foreign-owned companies”—if ITC imposes duties— “could double the price of solar,” according to Whitten. “That cost increase would cut demand enough to cause more than 88,000 American solar jobs to be lost”—of which roughly 38,000 are at American steel and aluminum racking and mounting system manufacturers.

The best way to strengthen solar’s impact is through sound policy, says Whitten. SEIA is fighting at federal and state government levels to promote solar power plant building and consumption. “Tax credits, net energy metering and renewable portfolio standards are some of the key policies that foster solar deployment.”

Solar power is gaining popularity with large corporations such as Walmart, Apple and Target. “This is not only to reduce their carbon footprints, but also because solar is now cost competitive with other electricity sources and is lowering electric bills for millions,” Whitten says.

Aging infrastructure impact

Replacing and repairing oil and gas infrastructure has moved slowly since the Great Recession, at least where federal monies are necessary to finance such projects. “Our thought was that when Trump was elected, [he would move toward] job creation and replacement,” Vivian says of the current administration’s attempts to propel private and public entities to invest. “Your guess is as good as ours.”

Whether the funding gains Congressional approval or not, the need to repair and replace infrastructure is mounting. “When things start blowing up because pipelines built to last 30 to 40 years are now 50 to 60 years old, I guess then we will take notice,” Vivian says.

Real change seems rather nebulous. “Most of what Trump has done is executive order and employee placement, which can be overridden by the next guy the day he takes office,” Vivian comments. “Trends could have more effect if he was to get re-elected for a second term,” but that possibility is a long way off.

While Vivian forecasts 2018 will be a better year, it “won’t be a gold rush.”

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