Oil and Gas Industry Review
The Oil & Gas industry in the US is currently experiencing major turbulence. The stranglehold that Covid-19 has on the American economy is absolute and as such we have seen a significant reduction in consumer reliance on energy exports, particularly those in Oil & Gas industry.
Though Covid-19 stimulus packages will likely aim to reduce much of the pressure these industries are facing, in many ways, much of the damage has already been done. U.S. petroleum consumption has fallen to its lowest level in decades due to travel restrictions and the economic slowdown, whilst crude oil production will likely fall to 11.7 million barrels per day by the end of 2020.
Responding & Adapting to Disruption in Oil and Gas Industry
The Oil & gas industry markets have always been volatile. Prices go up, prices go down – sometimes violently – and the industry learned to live with the volatility therein, confident that when the market went full cycle, the scarcity of the resource and their ability to find and tap it would keep them in business. This strategy does not work in 2020.
To this end, in the pursuit of disruptive change, industry leaders have few other options than to alter their go-to-market strategy, moving from a system of pulling traditional levers from past commodity cycles – e.g. managing liquidity, reducing costs & scaling back operations – and towards a process that prepares for the world we live in as well as the trends likely to come to light within that world.
Executives must now change their playbook, employing a two-pronged approach which first helps them to respond in the short-term to the issues they face and then rally to adapt to them.
The name of the game now, is diversification. Contrary to popular belief, evolution doesn’t require a scorched-earth policy, it’s a matter of bolstering your existing infrastructure by exploring new business models, creating new revenue streams, connecting new supply networks/adapting existing ones, strengthening relationships with customers, and managing your assets effectively with data.
By doing this, executives can help to set the terms by which they respond to the current crisis. Many executives are currently or will change their operating playbook in the coming months. Strategic divergence will be at the heart of many of these efforts, driven as it is by investor, societal and economic pressures but broadly we can expect the US Majors and larger Independent suppliers will intensify focus on their global core businesses; whilst European majors will diversify into zero-carbon energy.
When responding to Covid-19 then it is likely that executives in the oil and gas industry will seek to take the risk out of their operations through diversification, giving themselves room to breathe financially as they build out their new portfolios.
As we’ve discussed, consumer need for oil and gas has certainly dropped off but this will not be the case forever. In fact, it’s likely that the markets will return to relative normalcy once a vaccine is introduced to the global market. To this end, executives must also adapt their playbook and business priorities so that they’re well disposed to react and adapt quickly to any changes.
Erik Mielke, SVP and Global Head of Corporate Research for Wood Mackenzie recently stated, “the global economy will rely on oil and gas for decades to come, and the industry needs to continue to invest to meet future demand. We expect the strategic response to the virus will be to intensify the present emphasis on building resilience and sustainability.”
An executive’s ability to prepare for further volatility and risk is vital at this time. In the age of Covid-19, there are many worst-case scenarios to consider: a vaccine is still not forthcoming, second lockdowns loom and the virus could still mutate. To counter this, oil and gas executives must be prepared to adapt.
Continue the debate at the NG Oil & Gas Summit NA, a GDS Summit, where we bring together senior Oil and Gas executives who are actively seeking to share, learn, engage, and find the best technology solutions.
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