< Return to Bulls pageStrong Deepwater Fundamentals
Oil companies are drilling further out into the sea, deeper under the ocean floor, to tap into the last pockets of oil and natural gas to meet growing world consumption (think China). That was a mouthful, with quite a few variables at play in the sentence, so let’s break it down:
- Deepwater Drilling Is the Next Big Oil Play As traditional oil producing basins have matured, particularly on land, Exploration & Production companies have started to look for new reserves in challenging, deepwater environments off the Coast of Africa and in deepwater Gulf of Mexico (beyond the Continental Shelf). In fact, deepwater oil production is supposed to increase from 4.5M barrel equivalents per day to 8M barrel equivalents in 2014. Same trend applies to natural gas – from 1M barrel equivalents per day to over 2.5M. Why the 2-fold increase in deepwater production?
- Demand Exceeds Supply O&G is all about supply and demand, and we’re supply-constrained today, hence the skyrocketing commodity prices. Supply simply can’t keep up with growing worldwide demand. China and India are industrializing, and the energy consumption activities of these two countries will continue to increase exponentially, which will reinforce the long-term supply/demand imbalance. What does that mean?
- The Days of Cheap Oil and Natural Gas are Over We’re talking about a new commodity price regime with significantly high price floors for oil (north of $55 per barrel) and natural gas (north of $5 per mcf).
