As the world enters the unprecedented wake of the U.S. Shale Revolution, capital requirements for global oil and gas are projected to hit record highs. During this week’s First Annual Conference of the King Fahd University of Petroleum and Minerals Construction Industry in Dhahran, Saudi Arabia, Saudi Aramco CEO Amin H. Nasser announced that investments in global oil and gas are projected to surpass $30 trillion by 2050.
With a steady increase in oil and gas demand over the next 30 years, significant capital investment has to be available for new oil capacity and expansion to meet demand. U.S. venture capital, novel private equity models and yield based investments are in prime position to supply the capital necessary to rebuild American infrastructure and meet this massive capital need.
CPC Seeks To Improve Effectiveness and Role of Business Capital
Nasser highlighted the current low number of Saudi oil and gas industry workers and the low percentage of national institutions able to take on large industrial projects. “According to a recent study, only 30% of oil and gas projects are being fulfilled by the approved budget, and 15% of the projects are completed within the set timetable, which results in risks and negative impacts on the economic viability of these projects,” Aramco’s CEO said.
Saudi Aramco and several other international oil and gas companies launched Capital Project Complexity (CPC) under the World Economic Forum to focus on improving the effectiveness and role of business capital, decreasing project costs, improving schedules, increasing engineering efficiency, improving equipment reliability and quality, and increasing safety in the oil and gas industry.
This is clearly an area where 21st century data analytics could provide support.
U.S. Oil and Gas Requires New Investment Theses, Novel Capital Application
Saudi Arabia is not unique in its susceptibility to these challenges. Capital investment needs for the U.S. oil and gas industry are also massive in terms of both financial capital and human capital needed to implement the next phase of the Shale Revolution.
Intelligent technology development and new infrastructure require billions of dollars in capital. Not only do CEOs and hedge fund managers need to develop new investment theses, but it’s an opportune time to explore new, inventive and more efficient means of putting capital to work.
Venture Capital to Fund Oil and Gas Technological Innovation
Venture capital will drive the next wave of technological innovation in the oil and gas industry. Venture capitalists need to invest in new oil and gas digital technologies: data analytics, robotics, nanotechnology and the Internet of Things. Areas of high repetition involved with well construction, drilling, gathering, transmission and other field associated activities is a good place to start.
We must develop and deploy the technologies that can dramatically improve the efficiency of those tasks.
Private Equity Must Diversify Investment Models
Private equity will need more diversified investment models in order to generate return, writing bigger checks and potentially taking public companies private. Public capital markets and large oil companies pulling back due to volatility increases the necessity for private investment, and private equity firms are in prime position to seek out bargains.
Yield-Based Portfolios Generate Mailbox Money for Boomers
We must organize human and financial capital in ways that will provide “mailbox money” for retiring Baby Boomers while simultaneously rebuilding American infrastructure. For retiring Baby Boomers, investments in the oil and gas business provide an excellent alternative to bonds and annuities for a yield-based portfolio.
Energy-related royalty trusts, master limited partnerships (MLPs), exchanged-traded funds (ETFs) and direct investments can offset risk and offer high-yields and great tax benefits. This upcoming demand for yield-based securities creates a huge opportunity for the oil and gas industry to collect much-needed capital to handle the immense infrastructure needs of our oil and gas Millennials.
Any way you slice it, $30 trillion is a big, big number . . . amounting to over $1 trillion of capital investment each year for the next 30 years. Those that innovate and actively participate in the creation of a new vision for the oil and gas industry will be the winners, and those that don’t . . . well . . . .