Excerpt from "Security in oil and gas: price dip and geopolitics boost demand", A&S International, December 2015 (cover story).
Oil prices are at unprecedented low levels, but security market in the oil and gas vertical is expected to grow at a CAGR of about 5 percent from 2015 through 2020. Several reasons contribute to this, the most important being the need to reduce operational expenses and manage concerns of terrorism and geopolitical tensions. In this article we take a look at the changing oil and gas market landscape and how it impacts the security industry.
The history of oil and gas industry is fraught with booms and busts. But when prices of crude dropped about a half in 2014, there was little doubt the industry was witnessing a radical shift. Reasons for the price-fall then were several, including lower U.S. imports and increased production from Canada and Iraq. More than a year later, the price of global benchmark Brent Crude and the US benchmark WTI remain at around US$40 per barrel, way below the $90s and $100s seen over the last decade.
Predictably the price-drop and subsequent losses have prompted damage control measures from oil companies. Reports suggest over 200,000 people have been laid off and investments in infrastructure and equipment have been cut down.
The last part, decline in infrastructure investments, is what mainly concerns the security industry. But unlike sectors like oil-production equipment makers, the security industry is seeing more opportunities in the situation. Efforts to increase operational efficiency and secure against concerns like terrorism are expected to boost oil and gas security market in the coming years.
The situation outside Middle East
Industry players have pointed out that the change in oil industry is not just about Middle East, but other oil-producing regions as well. Michael von Hauff, CEO at Osprey Informatics, said that his company is seeing similar economic shifts in North American markets and that his company is ensuring steps to deal with them.
“We have placed a strong focus on our TCO advantages relative to competitive solutions － simple and fast installations, extreme bandwidth-efficiency for low data costs, remote system health monitoring and maintenance, and lower hardware and storage costs due to our cloud architecture,” von Hauff said. “In terms of ROI, we work with our customers to establish a business case based on labor optimization, reduced material losses and production disruptions, and improved response to leaks and spills.”
In fact, certain developments in North America are some of the key reasons behind the current oil-price dip. The so called “shale revolution” in U.S. has helped the country become self-reliant for its oil consumption, cutting its imports and reducing global demand. Shale oil production is the process of recovering oil and gas from shale rock through a technique known as hydraulic fracturing or fracking. While this is a threat for traditional oil producers, it offers a whole new opportunity for the security industry.
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