What’s Next For Oil And Gas?
Deborah Byers Contributor
I cover the energy transition and future of energy
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Oil demand has been decimated by Covid-19, bottoming in April at 76 million barrels per day, down 25% from 102 million barrels per day in December 2019. As economies reopen and mobility increases, the shape of oil demand recovery remains uncertain. In many ways, the coronavirus pandemic has accentuated the challenges and transformation that the oil and gas industry was undergoing, which has allowed the industry to respond much faster.
Most oil and gas companies dusted off their 2014 playbook and have pulled fairly traditional levers from past commodity cycles for short-term survival, such as managing liquidity, reducing costs and scaling back operations. But this downturn is unlike past cycles because the price pressure will remain due to a longer-term trend toward decarbonization.
As companies move from survival mode to longer-term reinvention, a new playbook will be needed. Oil and gas executives need to take stock of the competencies that will define success post-energy transition, figure out the gaps and fill them. There is no one-size-fits-all approach, and the industry will not respond in unison. Companies will go down different paths and the strategies that succeed will shape the future of the industry. The reshaping of the industry will occur over three phases: now, next and beyond.
Now: protect the business
The “now” phase is the immediate response to the crisis, and companies are either at or near the end of that phase. Oil and gas companies have had to simultaneously adjust to the operational challenges of doing essential business and the financial challenges of reduced revenue and cash flow. The market has stabilized as demand has gradually rebounded and producers have curtailed output, but there have been, and will be, casualties. Oil and gas oversupply and depressed prices have spurred bankruptcies and impairments, primarily in the U.S. upstream sector. More than 20 oil and gas companies in the US have already filed for bankruptcy in 2020.
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