Oil and Gas Industry
Today I will summarize all the analysis on the oil and gas industry that I read in Finimize Premium. Finimize, along with Quartz, are the best newsletter on business updates and analysis/strategy right now to me
Overall, The industry has experienced some of the biggest changes in its entire history over the past decade: “peak oil demand” due to 2 recent trends
- The shale revolution in the US unlock a massive amount of oil that experts previously thought was too expensive to extract
- The cost of renewable energy plummeted thanks to greater innovation and scale, helping reduce the world’s reliance on traditional fossil fuels to meet its energy needs
The four key parts of energy value chain
- Upstream: Companies look for reserves and extracts oil and gas once they’ve found. Key factors determining profits: production volume, prices and operational efficiency
- Downstream: Companies convert those above products into usable products such as fuel, plastic and petrochemicals. Key factors determining profits: market output and input price, utilization rate
- Midstream: The ones who link the two Upstream and Downstream together, storing and transporting oil and gas across networks of pipelines, railroads, trucks,.. It also transports finished products to end users. Key factors determining profits: volume
- Oilfield services: Companies provide equipment and services that help upstream companies explore for and extract oil and gas
The shift in Supplies
From 1859 to present, the most prominent and conventional way to drill oil is using a steam engine to drill into an oil reservoir and pumping its contents up to the surface. This method is divided into 2 types
- Onshore: production on land
- Offshore: production beneath the seabed
It’s simple, then it’s the cheapest way to produce oil. However, there is a new way emerging and changing the supply landscape: natural gas. It is produced virtually the same way as oil, but less environmental-damage. An example of its is shale production in the US
The changes in demand
Overall, it’s likely that it will decline deeply in the future.
- Oil: Two most important outputs of refined oil are gasoline and diesel, which are principally transport fuels, then transportation is the single most important factor in the demand equation (>50% world demand). It is facing an emerging threat from EVs
- Gas: The single largest use of natural gas is electricity generation and heating in residential and commercial buildings (>⅔ world demand). The use is mainly driven by the power sector with a fast transitioning towards renewables.
The factors that influence the price
- Long-term: it’s the sorts of supply & demand as oil and gas are commodities
- Short-term: (1) Seasonal trends; (2) Inventory; (3) Speculators and (4)Geopolitics
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