ENERGY UPDATE


NORTH AMERICA’S OIL AND GAS SECTOR:


RIDING THE ROLLERCOASTER


As the world energy market continues on its rollercoaster ride, falling oil prices, new methods of gas extraction, and the exploration of new producing regions are among the complex, interlinked factors affecting the oil and gas sector in the US and Canada. Mark E Johnson fi nds out how the current state of the energy market is affecting the countries’ economies in general and relocation in particular.


I


t’s been a tough year for the oil and gas sector. When the oil price began falling through the latter half of 2014, many analysts expected to see a rebound by the second


half of 2015. That doesn’t seem to be materialising. As we enter autumn, the price is still hovering a little below $50 per barrel – less than half what it was a year ago – and many firms are steeling themselves for a difficult ride, with cutbacks and widespread layoffs. North America, the US in particular, has had its part to


play but been far from immune to the effects of the price drop. “The US recorded the largest increase in oil production in


the world, becoming the first country ever to increase average annual production by at least one million barrels per day for three consecutive years,” said Bob Dudley, group chief executive for BP in the introduction to his firm’s Statistical Review of World Energy 2015. Not only did the US replace Saudi Arabia as the world’s


largest oil producer, it also rapidly grew its shale gas production, to overtake Russia as the world’s largest producer of oil and gas.


With much of this growth coming from hydraulic fracturing


(fracking), the OPEC cartel had hoped to outpace the US by maintaining production of its cheaper-to-produce, traditionally- extracted supply. The situation hasn’t played out as OPEC hoped, however, and (with the help of an economically weakened China buying fewer commodities) the result has been a price war fuelled by a glut of supply on the market. Hedging programmes, which lock in a minimum oil price


for firms by hedging against future prices, have kept many companies in the US and Canada relatively secure through the first half of 2015. As those programmes expire, however, some analysts are predicting more shake-ups for firms down the line.


Hard times Simmons & Co International, an energy investment bank,


says that, as the programmes expire, firms with lots of debt and poor liquidity may be forced into bankruptcy, while others may have to start selling assets to raise cash. Reports of sector layoffs in the US are rife, with new


20 | Re:locate | Autumn 2015


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