Fracking, thought by many to be the answer to long-term oil production, could prove to be a bubble about to burst.
The rise of U.S. oil production
At the moment, the United States is currently the top producer of natural gas – and is expected to be the top producer of oil within the next five years. More than seven million barrels of oil are packaged in a day, more than a quarter of which is derived from the introduction of fracking.
As a result, it’s estimated that 4.6 million new jobs have been created, adding an estimated $3.5 trillion dollars into the United States stock market. Experts predict that oil production will continue to grow within the next 15 to 20 years.
Why oil may be phased out
The fracking controversy
Fracking has been the subject of contention between drillers and geologists since it began because it causes extreme disruption to the ecosystem around the drilling site.
Fracking is the process of using pressurized water to blast open layers of shale and sediment that have been broken down with acid, allowing crude oil to flow into horizontal pipes. The water used to drill is then considered unusable and is normally disposed of in various dump sites. Some believe the disruptive nature of fracking increases the number of earthquakes nearby, but that has yet to have been proven.
While these “tight oil formations” yield high initial volumes of crude, each site’s production drops off to around 30 percent within the first year.
Advancement of green energy
At the moment, the largest consumer of natural oil and gas products is China. While China is still using oil to power most of their resources, they’re making a big leap to green renewable energy.
Even if China were to phase out natural gas entirely, the United States could still provide natural gas for the rest of the world. However, China uses so much of the U.S’s oil supply that the demand for natural gas would drastically decrease. A decrease in demand means a decrease in the price the U.S. could sell natural gas for, therefore reducing the profit our country makes on these means.
Many scholars and businesspeople suggest the U.S. should continue pursuing oil and gas, but transition a decent amount of their efforts towards producing renewable energy sources as well. That way, if the bottom completely falls out on the oil and natural gas industry, they will have footing in another energy source.
What your oil and natural gas company can expect in the future
If you run an oil and natural gas company, be prepared for a lot of ups and downs over the next several years. The battle between those pushing for natural gas and those who are pushing renewable energy is only going to get more intense, meaning your company could be on top of the market one year and then scraping by the next.
It’s hard to say ‘expect the unexpected’ but that is simply the case for this industry that seems to be struggling to exist both in the present and the future.
Guarantee your success
One of the best things your company can do to ensure it stays successful is making sure it has a steady cash flow to ride out the industry’s turbulence. Regulate your cash flow by utilizing oil and gas industry factoring, a process in which your company sells its unpaid invoices to a factor for a cash advance.
In addition to providing you with peace of mind by ensuring your cash flow is steady, factoring also gives your company back office support in the form of credit analysis, A/R management and billing/collections.
Have questions? Give one of our factoring specialists a call.
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