In 2020, the most difficult challenges for the oil and gas industry turned out to be geopolitical risks, trade tensions, and a sluggish pace of worldwide economic growth. Of course, the unpredictability of the COVID-19 situation means that providing solid predictions is more difficult than ever before.
Nevertheless, we’ll take a look at the current state of affairs in the oil and gas industry, in an attempt to provide decision-makers with some informed insights; ones that might aid their organizations in boosting profits and recovering from the inevitable COVID-19-induced downturn.
It’s definitely true that the commodity and financial markets across the world have been heavily disrupted. In this regard, the oil and gas sectors are no exception. While this industry is not unfamiliar with price cycles, the current year has still presented its share of challenges. What we can say with certainty is that 2021 is going to be a challenging year — but that recovery should be complete in the mid-2020s.
Considering all of this, can oil and gas companies stay competitive and come out ahead after the pandemic crisis settles down? And how do professionals in these sectors feel about their chances in the near future?
According to our research, more than two-thirds of decision-makers — meaning senior professionals — in these sectors feel confident that their efforts will result in industry growth by the end of the year. While this seems like a very positive outlook — bear in mind that more than 75 per cent said the same thing in 2019; meaning that crucial decision-makers feel like their chances are slimmer in 2020.
Another thing that speaks to this is that less than half of industry professionals believe that they’ll be handling capital-heavy new projects by the end of this year. Everyone involved is coming to terms with the fact that the flow of capital will not be as easy in 2020; at least not for huge projects in the oil and gas industries. Still, all sorts of companies that are a part of the value chain of these sectors think that some investments will still be made. This is particularly true for long-term investments — such as those that pertain to energy transition projects.
As a matter of fact, the transition of oil and gas into greener and more sustainable business models is a trend that is still going strong. Approximately sixty percent of all companies in the sector claim that they are working on an energy mix that’s less carbon-intensive.
So, the growth of the industry is far from a sure thing in 2020; however, this year aside, the leaders in oil and gas have cautious but strong optimism for the future. Most of them believe that they’ll be able to withstand the challenges of 2020 and recover from an economic downturn afterward. Those that have worked the hardest on improving cost-efficiency will have the easiest targets to hit. And as it turns out, more than half of all companies in the sector believe that they’ll be able to do so even in the current year.
Almost half of all industry participants argue that their profits would be acceptable if the price of oil would stay below $50 per barrel.
There’s no doubt about the fact that uncertainty is a persistent trend in the coming years — especially with new risks and growing complexities that appear on the horizon. However, the stance towards problem-solving in both the short and the long term is far more aggressive than in a previous couple of decades.
This means that the decision-makers are aware of the global pivot in favor of an energy future that’s less dependent on carbon. Over the long term, decarbonization remains the center of the industry’s wider agenda. No market volatility or short-term disruptions are set to change that; including stalling industry growth during this year.
We can see this from the investment plans for the current year. The number of companies in the oil and gas sector that still plan on raising the bar for investments into renewable energy has actually risen compared to 2019 — by almost ten percent! Within this effort, we can see that offshore wind investments are the leading segment; more than 60% of all companies that have invested in this energy source in 2019 plan on increasing investments this year.
The same goes for the efforts to increase the utility of a hydrogen economy in the global energy supply. More than 40% of leading professionals claim that they support spending increases for this sector in the next year.
All of these are quantifiable indicators of the fact that plenty of important people in the oil and gas industries realize the social and economic moment that they’re living. The solution for a perfectly decarbonized system of global energy supply will not appear out of thin air. And in the meantime, these sectors would continue to emit worryingly high levels of CO2.
Thus, before a catch-all solution is found with some revolutionary technology; these industries are working on a host of smaller-scale solutions that will lower the carbon emission levels using currently available technologies. These industries are more than ready to tackle international and local climate goals.
Furthermore, almost every single professional in the industry states that their organizations and companies are hard at work to maintain the current levels or increase spending on an effort to digitize. Senior officials and professionals have confidence that digitalization is an important factor for revenue resilience; not in the least because of the increased capacities for complex data analytics.
In conclusion — while everyone agrees that 2020 and 2021 will not be stellar years in terms of pure profit, the industry leaders in oil and gas have long-term plans that will mitigate any fallout from COVID-19 and other disruptions. We hope that this guide was useful to you and that you have learned something new today. Make sure you are staying safe in these times we are all going through and have a good one!
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