San Antonio Express-News (Sunday)
‘Super Bowl of Oil’ back amid industry’s existential crisis
The Offshore Technology Conference returns to Houston's NRG Park this week amid a four-month run-up in crude prices to 14-year highs. Normally, that would be cause for celebration.
But high oil prices may not be enough to reignite interest in the so-called Super Bowl of Oil, which was steadily losing attendance even before the pandemic forced its cancellation in 2020 and kept away thousands last year.
Signs so far point to a lessthan-glorious return, with big names such as oil field services giant Halliburton and Argentine pipe-maker Tenaris bowing out this year and, according to some working behind the scenes, a physical footprint still much smaller than it was before the pandemic.
The COVID-19 pandemic put a sharper focus on the existential crisis already facing the offshore oil industry, which relies on massive upfront investment paid over several decades. Offshore platforms are multibillion-dollar projects that can take nearly a decade to plan and build, plus decades more after first oil to return the investment. Even now, as the war in Ukraine drives new concerns about energy security and pushes up oil prices, analysts project oil demand will begin to fall precipitously by 2035.
In an effort to remain relevant, the conference is dedicating space to the energy transition for the first time, and its agenda has shifted overwhelmingly to energy transition topics such as offshore wind, net-zero emissions and carbon capture.
“I think we've recognized that governments and organizations around the world are working to meet net-zero targets,” said Paul Jones, OTC board chairman. “And the energy industry is at the forefront of advancing the technologies and the innovation that we need to make this a reality.”
Jones declined to provide attendance projections but said OTC leaders “have high expectations” that the event will lure back many people who tuned in virtually for last year's conference, for which organizers declined to provide attendance figures for the first time in its 52-year history.
Even before the pandemic, annual attendance at OTC had declined for five consecutive years after oil busts in 2014-16 and in 2018 slammed the sector and forced mass layoffs. The conference drew 59,200 in 2019 and 61,300 in 2018, compared to a record 108,300 in 2014 — the last time oil prices reached $100 a barrel.
The event was slated to draw 30,000 people last year after the rollout of vaccines and the oil industry began its rebound from the worst oil hit in a generation. Then COVID's delta variant hit, ushering in a wave of cancellations and a new surge in infections.
This year, Jones said, OTC's energy transition focus should attract new faces.
“Whether we are seeing exhibitors in the traditional oil and gas space or the renewable space, if you want to showcase a new technology, OTC is a great place to do it,” he said.
The conference is still a boon for many companies, including Houston robotics company Arc Specialties. President Dan Allford said it is well worth the $40,000 his company spends annually to exhibit there. While the return on investment is tricky to quantify, he said, it's important for buyers to be able to see the machines and interact with them before committing to buying them. “I'm convinced it's essential,” he said.
Bigger names are taking a different approach. Argentine pipe-maker Tenaris typically peddles its wares at the conference but won't exhibit this year, according to OTC's website.
Halliburton, the world's thirdlargest oil field services company, and its smaller competitor Weatherford International also are noticeably absent from the list of exhibitors. (Halliburton declined to discuss its OTC plans, while Weatherford did not respond to a request for comment.)
Tenaris said concerns over possible COVID-19 restrictions drove its decision not to exhibit during the conference, for which it is still a sponsor.
Salespeople for trade show display company Skyline said there are far fewer booths this year than before the pandemic. Companies that are exhibiting are looking to cut costs associated with the event by bringing less equipment and renting
booths rather than buying them outright, they said.
“Cost savings: That’s the big thing right now,” said Diana Escanuelas, a sales representative for Skyline.
Spending discipline is another fallout of the pandemic downturn. As COVID wiped out oil demand and battered the industry, oil producers preached restraint as a way to win back Wall Street.
Now, oil prices are soaring again and short-term prospects look bright for offshore oil and gas, but if companies don’t tread carefully they could get stuck with massive debt, consultancy AlixPartners said in a February report. Offshore investments are expected to grow to more than $115 billion this year.
The balance will be a tricky proposition. Exploration and production must reach a sustained $470 billion through 2030 to balance oil supply and demand that is still growing with the world’s population, AlixPartners said. Around 17 percent of the world’s energy supply is derived from offshore fields.
Oil demand could peak within five years as more people buy electric vehicles, McKinsey said in a new report last week.
If the offshore industry doesn’t adapt as it grows production, the financial consequences could be “tremendous,” AlixPartners said. “Short-term opportunities” created by high oil prices won’t spare them future pain when oil demand falls.
But while the decline of oil demand is in sight, offshore gas has a much longer runway. McKinsey’s report projects gas demand will keep growing until at least 2035 — perhaps longer, depending on which direction the energy transition takes.
“Gas is going to be critical to the energy transition,” said
Tom McNulty, managing director of Chiron Financial, a Houston-based energy investment banking firm. “We have a lot of it domestically offshore.”