What is Next for the Oil Industry?

Several developments are poised to reshape the oil sector. Within the next 20 years, demand is anticipated to peak and fall, resulting in industry convergence and a weakening of existing companies’ competitive advantage. The future oil sector will also see both energy and non-energy players, implying that oil firms are attempting to adjust their business methods to the new era.

The primary question is how the future ecosystem will look and if existing companies will use their core competencies to survive and even gain from these new challenges. What will the future oil corporations look like?

The Need To Reinvent the Industry

Despite average oil prices of more than $70 per barrel over the previous decade, free cash flow from core activities has been inadequate to keep shareholder returns above the cost of capital. Since the depths of the 2008 financial crisis, the leverage ratio of total debt to total liquidity has more than quadrupled, and the industry’s share of the S&P 500 has been slashed in half over the previous decade.

Despite these warning indications, oil and gas corporations continue to play a critical role in the energy future, notably in providing safe, cheap and sustainable energy to over a billion people. However, oil and gas will no longer be the uncontested energy leader, as alternative sources will soon be taking the lead.

Where the Industry Is Headed

The World Economic Forum’s Oil and Gas community is joining forces to investigate projects that encourage collaboration between oil and gas industry businesses and their ecosystem.

Among the key initiatives are:

1. Establishment of Global Networks and Hubs

The O&G industry will seek to establish a global hub network to allow offshore logistics, warehousing and surplus inventory pooling, resulting in $14 billion yearly savings from increased infrastructure usage and inventory reduction.

2. Standardisation of Equipment Specifications

Standardisation of equipment specifications for bulk material and packaging procurement is expected to result in a 10 per cent to 20 per cent reduction in capital expenditure on equipment and a 40 per cent reduction in schedule compression, among other significant benefits.

3. Diversification of Energy Sources

Some oil and gas firms will extend their focus to include hydrocarbons and electrons, emphasising end-user demands.

4. Streamlining of Data Sets and Digital Collaboration Platforms

This initiative aims to develop common standards for data architecture and APIs throughout the oil and gas sector, allowing data sharing and establishing the groundwork for digitalisation and data-driven decision making, which will accelerate the timelines of ground projects.

Conclusion

The oil and gas sector must confront several difficulties and prepare for an increasingly complicated and uncertain future. The capacity of the industry’s executives to detect essential signals and respond decisively is vital to the industry’s success.

One critical option is to explore collaborative projects on a local, regional and global scale. Working with peers in the industry and suppliers, as well as encouraging suppliers to join forces and collaborate in strict accordance with competition law and antitrust standards, the industry may eliminate waste, increase efficiency, cut breakeven costs and minimise its carbon footprint.

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IMAGE © Katharyn Quinn 2021