“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…”
The opportunity to use this opening line about the oil and gas industry and the state we find ourselves in does not present itself very often. Fortunately!
However, here we are. We are experiencing a perfect storm of events, all moving in different directions.
- A shift in global oil and gas supply chains has occurred in recent pre-covid times in the USA enabled by fracking, elevating the USA to a world leader in oil and gas production, giving it sovereign certainty regarding its own hydrocarbon supply chain. However, this is at risk by certain powerful lobby groups who outwardly state they will ‘Ban Fracking’.
- The Shale boom enabled by fracking, which caused the lowering of the US domestic gas prices, for the foreseeable future, started the slow but steady move of Petrochemical industry manufacturing to the USA, with its lower for longer gas prices, away from cheaper labor manufacturing locations.
- Covid international lock downs have caused a drastic drop in the global consumption of Jet and Kero due to travel bans devastating many global and domestic airline companies. This has simultaneously led to Refiners fighting for survival, some unsuccessfully.
- Capital for upstream will likely favor existing production and the lower risk expansion of existing production than exploration plays. Some pure exploration play, small to medium Cap companies will invariably go out of business.
- A combination of Covid and the US China trade war is leading many companies to evaluate their global supply chain risk.
- For bulk manufactured commodities this will likely lead to an increased flight of capital from China to alternative low-cost countries such as India and Vietnam.
- For high tech manufactured goods this flight of capital will likely favor Japan, Taiwan and Korea.
- Sovereign risk will be re-evaluated by all countries likely leading to a resurgence in some manufacturing sectors that globalization had been eating away at for some time.
- Energy security will continue to be a focus. Hopefully with an increasing understanding by the population at large of the Duck Curve nature of renewable energy, and that the ultimate enabler of renewables is actually natural gas today slowly shifting to some Hydrogen in the future. Hydrogen is clean, yes, but it is expensive.
- Based on this global oil & gas supply chain re-adjustment, there may also be a reallocation of where petrochemicals and polymers are manufactured causing a shift in that global supply chain. It doesn’t matter how much we use hydrogen. We still need hydrocarbons and natural gas for the polymers which we use in everything from clothes & cars to building materials. As well as flying plane loads of people around the world.
- Add Digitalization to all of this. Many companies in our industry and its service industries have been slowly working towards a more flexible way of working. Taking the data, associated with running our businesses, to its people rather than the other way around. This has been a work in progress for years. Who’d of thought we could all do it in 6 months! What was impossible a year ago is almost ‘fait accomplis’. Although this is a bit of an over statement. There are many wrinkles to be ironed out regarding the efficiencies of determining exactly who can work effectively remotely and who is needed on site.
- Our industry will digitalize much faster now because of Covid. The path from manual to automatic to autonomous is now the path for all as we aim to survive and be ready to thrive in a post Covid world.
- A post Covid world will use less hydrocarbon per capita than it did before the start. More people will remain working from home or travel less frequently to an office or site. Business air travel will not cease but will definitely decrease as we are all far more tolerant of meeting online. This is not a bad thing. The use of hydrocarbons is here to stay for a long time, but its use will permanently change and continue to change.
In all these conflicting circumstances there is both opportunity and risk. The best of times, for some, and the worst of times for others.
How will the Oil & Gas industry take advantage of these opportunities and manage the risks? This is something we help our customers with every day. These are things the industry should be very good at, although dealing with all these aspects simultaneously will test us all.