Current Industry Scenario
2014 saw some extreme fluctuation in the oil and gas market, as crude oil WTI prices fell sharply from above US$100 to as low as US$46 per barrel during the last half of the year.
The major reason for this decline was decreases in the US import of oil and gas because of the country’s increased rig count, exploration of unconventional resources of oil and gas, and maximization of production at existing oilfields.
However, there was no reduction in oil production in the Middle East to correspond with the overall fall in demand. This resulted in an oversupply of oil in the market, which led to the drastic drop in price.
The sudden and unexpected decrease in the price of crude oil has caused a stir in the oil market with many companies announcing job cuts. Even so, US oil production is still expected to increase, forcing the price of oil down even further during the first quarter of 2015.
Even though global demand for oil and gas remains high, the instability of prices and increased exploration of renewable energy has truncated market growth. From 2014-2019, the oil segment of the market is expected to grow at a CAGR of 0.8 percent while the gas segment is expected to grow at a CAGR of just 0.2 percent.
The Onshore Oil and Gas Market is hugely complex, as are the reasons for its stagnating growth. However, TechNavio analysts have broken down a few of the key challenges the market is expected to face over the forecast period.
Political Instability
The Middle East produces more than 28 percent of the world’s oil, but widespread political turmoil in the area is posing a huge challenge to the Onshore Oil and Gas Market.
Political instability in key oil production areas affects the flow of funds and investment in onshore exploration and production, because of a loss of access to crude oil well, which leads to insufficient capital returns.
Political risks such as war, expropriation, fiscal changes, price increases, production restrictions, devaluation, and embargoes are expectd to adversely affect investment and market growth over the projected period.
Emerging Non-Conventional and Renewable Sources of Energy
Oil’s reign is coming to an end, with renewable and sustainable energy sources taking center stage in the wake of the oil crisis and a rise in the number of environmental and health concerns surrounding oil production.
Renewable energy resources such as solar, wind, biomass, and hydrogen have enormous potential to expand in terms of overall use, as well as market growth, and it is expected that future growth in the energy sector will primarily come from renewables.
It is also expected that the development of non-conventional and renewable sources of energy will lead to a decrease in oil and gas exploration activities worldwide, thus adversely affecting the Global Onshore Oil and Gas Market.
Environmental Challenges
Oil exploration and production activities such as hydraulic fracturing and acidizing cause serious problems in the environment.
The environmental impact of onshore oil and gas production includes ground water contamination, degradation of air quality, and migration of drilling fluids, chemicals, and natural gas to the surface. Also, emission, including methane, diesel fumes, ozone precursors, and other hazardous pollutants pose a risk to air quality.
Due to drilling operations, increased seismicity has become an environmental issue. Increased public concern and government regulations to control the environmental impact of onshore oil and gas production is a major challenge to the Global Onshore Oil and Gas Market.
Rise in Unconventional Oil and Gas Resources Will Buoy Market Growth
The one saving grace (if you want to call it that) for onshore oil and gas is unconventional resources. Governments and oil industries worldwide are shifting their focus to unconventional oil and gas resources because of the decline in the production and exploration of conventional reserves.
These unconventional resources can include:
- Tight oil (low permeability rocks including limestone, carbonates, and siltstones)
- Shale gas (natural gas locked in fine-grained and organic-rich rocks)
- CBM (natural gas locked in coal)
- Shale oil
- Heavy oil
Advanced well completion and stimulation methods such as hydraulic fracturing, acidizing, and other advanced techniques of well completion are major reasons for the growth in unconventional oil and gas production. The share of oil and gas from unconventional resources is expected to increase significantly over the next decade. In the US, production from unconventional oil and gas sources such as tight oil and shale gas is expected to increase to 49 percent of total production by 2020 (in the chart below, F stands for forecasted values).
