Global events and political developments can have a big effect on all aspects of the oil industry here in the UK.
In this article, Andre Davis, co-founder and Commercial Director of procurement and supply chain specialists to the oil industry, ARDVIK, outlines the effects recent events have had on his sector.
Having worked in procurement and supply chain management to the oil and gas industry for well over a decade, I would say that a large part of being successful in this industry is the ability to build relationships with both partners and clients based all over the world. I think this would be true for all organisations operating in the oil and gas industry, and it is certainly true for my company.
For example, we have a number of partners based in America and a significant number of clients in the United Arab Emirates, and so we have to be mindful of the effects external global events can have on our relationships with them. Given North America and the Middle East are both large centres for oil extraction, this is where much of the action is in the oil industry, and thus, the same would also be true of our competitors too.
Furthermore, when shipping any goods, be it via air or sea, certain associated fees are processed in the currency of the destination country. This is important because, as I'm sure many of you are aware, the strength of the British Pound against the American Dollar fell significantly following the results of the EU Referendum. Thus, for our American partners, they have seen a significant decrease in the cost of shipping goods to the UK, thereby increasing their profit margins. However, these cost savings are not always being passed down the supply chain to British buyers who are now paying more for the equipment they order because of the Pound's weakness against the Dollar. Therefore, when a British buyer then ships this equipment to the Middle East, they suffer monetarily again as the EU Referendum result has also caused the Pound to fall against other currencies too, including the UAE's Dirham. Therefore, the cost of shipping to the Middle East has also risen. Thus, it has become more economically challenging to be a UK supplier currently.
As for that other major global event that occurred recently, it's still too soon to say what effect Trump being elected will have, and the industry will be eager for Trump to make his energy and foreign policies clear.
However, based on what he said during the election campaign, it would seem that the oil and gas industry will continue to prosper in America. Trump has denied that climate change exists and has suggested that America will pull out of the Paris Climate Agreement. To me, this suggests then that Trump will not be pushing for advancements in the use of renewable energy sources during his presidency. While that may not be good for the planet, it stands to reason that it would be good for those working in the fossil fuel industries.
Furthermore, Trump's team has also declared on his transition website that “regulatory reform is [a] cornerstone of the Trump Administration”, promising no new regulations as well as a review of the old ones, and has specifically said that he will look to “lift restrictions on American energy” in what was seen as an appeal to America's ever-growing fracking industry. In addition, Trump has also indicated that he will look to restore America's coal mining industry to its' former glory too. Therefore, it's looking like we and other procurement specialists will have no shortage of business going forward under a Trump presidency.
The global economy is more than just the oil and gas industries though. Therefore, we will have to see what his overall policy agenda will be and also what kind of relationships he will develop with other world leaders. At the risk of sounding overly-optimistic, the signs look good thus far; for example, Downing Street has claimed that Trump stated he wants to develops the kind of relationship with Theresa May that Ronald Reagan and Margaret Thatcher had in the 1980s during his and Mrs May's phone conversation following his election. The Japanese Prime Minister Shinzo Abe has also said that he is “convinced Mr Trump is a leader in whom [he] can have great confidence” following his meeting with the President-elect in New York. Finally, Vladimir Putin called for a new era of “fully fledged relations” between Russian and the USA following the frosty relationship he and Barack Obama had.
Therefore, while the EU Referendum result has proved to be a challenge for those who are supplying the oil and gas industries, it looks like Trump's presidency could help to mitigate the economic circumstances caused by the referendum in June for organisations such as mine.
However, it has to be said that any change can create potential uncertainty in the markets, and you could sense as Brexit approached that businesses had started to become more reticent as the markets flittered nervously. Given that Hillary Clinton and Donald Trump were both confirmed as their party's nominee in the run-up to the Brexit vote, this just compounded the problem. I certainly noticed that any speculative projects and major investments were put on hold this summer, with many in the oil and gas industry instead focusing on essential works, maintenance and repairs.
It would also be fair to say then that the oil and gas industry is in something of a state of flux currently – oil, gas and other fossil fuels will continue to be needed for some time yet, and Mr Trump certainly seems to be a President-elect that will be favourable for the industry. However, there is still uncertainty; The UK electorate voting to leave The EU caused a significant drop in the strength of the Pound and this has already been felt by companies such as mine. The UK exiting the European Union may not happen though given the recent High Court ruling and if this was to become definite and the UK remained in The EU, the world markets would again be affected.
The events of the next few months will be very significant, with Mr Trump being inaugurated and revealing his policy stance and confirmation of whether Britain will be invoking Article 50. I say this, as I feel there is a sense that, unless all of the unprecedented events that have occurred this year go in the right direction, creating the jobs and wealth promised, another global recession could be just around the corner.
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