Is the Oil & Gas Bonanza Over for Carriers?

So far, the oil and gas industry has been a lucrative market and one which various cargo airlines have placed much emphasis on in the past few years with regards to tapping the transport of oil and gas equipment around the world.
However, the wind seems to have been taken somewhat out their sails lately due to the drastic fall in the price of oil.

Cargolux is constantly carrying drilling equipment and other oversized items around the world  /  courtesy CV
Cargolux is constantly carrying drilling equipment and other oversized items around the world / courtesy CV

Big freighters continue to take the lead
Equipment bound for the oilfields scattered around the world is often needed at short notice.
It’s here that airfreight comes into the picture, especially carriers who are able to lift individual heavy pieces on their aircraft.
Undoubtedly, Volga- Dnepr with their large fleet of the massive Antonov 124s is a leader in this field.
Other dedicated freighter carriers such as Lufthansa Cargo and Cargolux have put a lot of work into developing their product offerings towards the (then) lucrative oil and gas equipment transport.
Lufthansa Cargo for example initiated a once weekly Boeing 777F service from Houston to Stavanger, Norway, which is dedicated solely to the oil and gas equipment business.

One man’s joy - one man’s sorrow!
The price of oil, the so called Brent Crude, has been dropping fast during the past twelve months.
Whereas it was once selling at around US$110 a barrel, the price has dramatically fallen to the US$40 per barrel range.
A great situation for the airlines that due to the low oil price have been able to consolidate costs and bring better results.
However, the oil industry is ringing the alarm bells as they claim that the funds available for developing and investing in the industry are dwindling very fast and their profits are taking a beating.

Is the bonanza over?
A lot of money is needed to be able to support the more costly methods of extracting the black gold from the earth.
These include such processes as sand, oil shale and hydraulic fracturing (Fracking).
The result of this could well be that less and less expensive drilling equipment will be bought and hence less need for transport.
At least by air which is much more expensive than by sea.
The airlines and freight agents involved in this form of transport claim that there is still enough work in the pipeline for the foreseeable future.

But, is this really the case?
Lufthansa Cargo has no plans to curtail or cease their weekly operation from Houston.
They seem so far to be happy with the return on investment.
But, will they, as one of the leaders, be forced to rethink the service if the price of crude oil falls even further and the suppliers as well as the oilfield operators don’t get the orders anymore due to the fact that less oil may be produced or that the oil companies are seen to have to make do with what they have.

Norwegian crisis
A mainstay of the Norwegian economy is of course its large oil and gas industry.
Reports in the press of the past days state that Norway is suffering hard under the worldwide fall in oil prices.

The price of oil has dropped more than 50 percent alone in 2014 and the Norwegian economy reports stagnating figures, higher unemployment and rising house and apartment prices.
This is all put down to the cash flow shortfall experienced because of lower oil revenues.
Norway, one of the richest countries in the world is heavily reliant on revenues generated through its oil and gas industry.
Almost every tenth Norwegian is involved directly or indirectly in the oil and gas industry.
More than 20,000 jobs have been scrapped during the past one-and-a-half years and some experts reckon with a further 10,000 layoffs due to the situation.

If this trend continues, and not only in Norway, then surely the result might be that oilfields will close, equipment on order will be severely restricted and carriers, ocean or air, will lose out.

John Mc Donagh

Write a comment

Comments: 0