Supply & Demand
I f x & y are two directions, x taking you furthest away while y taking you highest, then the fastest way to reach the top point that is furthest away is to travel along the line of 45Deg. This simple mathematical concept is the basis when we view growth of economies through the lens of time, where, in the long run (fastest possible way forward and our reference), we assume that the economy only grows, however, in the short run, our aim is to either bring the economy back to the long run line (measures that will cause inflation) or stop it from moving further away from it (trigger recession).The Oil & Gas industry is driven by Supply & Demand. As the global economy expands, so does demand for crude oil. When the demand is high, the price of oil goes up. Major oil producing economies, like Gulf countries, Russia, US and others benefit from this environment and look to increase supply. Â But what drives demand?After the GFC of 2008-09, global economy once again found itself struggling to find a driver for growth. Although Chinese economy was already supporting global economy pre GFC, it once again rose to the challenge and came to the rescue. They continued to provide cheaper production alternatives to incumbent developed economies and we saw businesses shift their production facilities to China. Through the power of its Labour, China was also able to provide cheaper products to the world, ranging from building materials to industrial grade machineries such as oilrigs. Chinese economy was able to spur global economic growth. And to support this global growth, China, and as a result, beneficiaries of Chinese economic activities, required a resource, which was Crude Oil, hence increasing the global demand and price of oil.
To keep up with this demand, all major oil producers looked to increase their production capacity from 2009 till 2013. UAE’s ABU Dhabi Company for Onshore Oil Operations (Adco) planed to drill close to 1,500 wells between 2009 and 2013 plus an additional 72 wells on behalf of Abu Dhabi National Oil Co (Adnoc) in the latters sole risk areas, according to Adcos internal plans. This plan was part of a drive to push output to 1.8 million barrels per day (mbpd) from the current 1.4 mbpd. As of 2015, UAE produced approximately 3.0 million barrels per day while its domestic consumption of oil was only 0.8 mbpd. This excess production was exported and due to high price per barrel, resulted in huge revenues for UAE Government. These revenues were used by the government to further support growth in its own economy by increasing its spending power. To demystify drilling, it can be divided into 2 categories based on the location of the well. Onshore Drilling, done on land, is relatively simpler operation. Major challenges faced during onshore drilling are the temperature, pressure and securing of the well. Roads are available; therefore managing logistics is easier and cheaper. Offshore Drilling, done over water, on the other hand, is a much more complex operation. Offshore drilling faces the additional challenges of harsher environmental conditions such as deep waters, high currents in the sea, limited space and remote locations as well as transportation of personnel, supplies and wastes to and from the drilling site. This results in a much higher cost of drilling a well offshore than onshore as well as longer time to complete a well.