Oil & Gas Majors

What are the consequences of the Covid-19 pandemic on the O&G industry?

• At its peak, the reduction in global demand is expected to be as high as ~ 27 million barrels per day for the month of April 2020, to be compared with a typical global supply of ~101 million barrels per day (2019 Q4).
• OPEC+ meetings halted price falls by agreeing on production cuts of around 10 million barrels per day globally. But regardless of the efforts on the supply side, the size of the current glut will inexorably weigh on the markets for the foreseeable future.
  
• As a consequence, global Crude oil prices fell to levels not seen since decades, as Brent prices dipped below $20 and WTI prices even briefly became negative, as storage (land and floating) reaches capacity.
   

Not surprisingly, the current levels of Crude oil prices, if sustained over a long period of time, will render most Upstream projects uneconomical. The related consequences can already be seen: OPEX and CAPEX reductions, Final Investment Decision delays, cancellation of projects, and, in some extreme cases bankruptcies. The current situation creates difficult challenges and O&G players should respond accordingly:
 

• To weather the immediate storm, O&G players need once more to scrutinize their costs and identify actionable levers. Operational efficiency gains through digitalization started slowly post-2015 but undoubtedly remains one of the few underused levers left to action.
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  In addition to those short- and medium-term actions, O&G players should take the opportunity to take a step back and rigorously reflect on their portfolio.

Long term challenges ahead

The current crisis, as disrupting and severe as it is, should not overshadow the much larger challenge of climate change, which will put millions of human lives and trillions of US$ at stake in the coming decades. O&G players are under growing pressure and exposure to the physical risks of climate change with potential damage to their infrastructures, to liability risks, and to transition risks with stricter regulatory requirements, growing expectations from stakeholders and societal evolutions calling traditional business models into question.

In addition to taking steps to manage the current crisis, O&G Majors should seize the opportunity to accelerate their journey towards the Transition and become the vanguard in delivering solutions that fit the triple bottom line, through their ability to think, create and develop business opportunities. To this end, O&G Majors can draw from their deep investment capabilities, their critical ability to deliver complex projects with the adequate human resources, and their decades of experience in creating strategic partnerships and alliances when capabilities are complementary, in order to offer innovative value propositions.