The year 2022 is going to be important from the point of view of stakeholders involved in the oil and gas industry. Oil and gas companies worldwide are steadily moving towards reinvention as they are now focusing more on their overall financial health, robust capital discipline, commitments to climate change, and tweaking their business models. As per Deloitte’s 2022 Oil and Gas Industry Outlook report, over two-thirds of oil and gas companies are expecting a positive outcome from the changes that have been recently made by their executives in the business model and overall functionality. While the world hasn’t yet recovered from the economic stagnation of the COVID era and aftershocks coming now and then, the O&G companies have rebounded strongly through the last year, and the prices have also reached the highest level in the past six years. However, one cannot say that market dynamics will stay intact in the coming year. The same report by Deloitte talks about how the upcoming market behaviour of the oil and gas industry will depend on the choices that these companies make and the trends they prioritise to reinvent their decision-making in the coming ten years. Oil And Gas Industry Going Through Reinvention The companies that are strongly committed to undergoing a reinvention in the coming three years are expected to see higher growth in their revenues. Their margins are also speculated to be twice that of those companies in the oil and gas industry that seem least interested in any reinvention. As per a survey report by Accenture, around 10% of companies scored highest in the ‘Reinvention Index’, which evaluates the oil and gas companies on the basis of various parameters of reinvention. These companies are the ones that are the flag bearers of reinventions and technology innovation leadership of tomorrow. The report contains results from a worldwide survey of around two hundred oil and gas executives.
1. Higher Oil Prices Leading A Shift To Energy Transition
After a continued slump, the oil prices finally recovered around $80/barrel in April 2020. However, as per the past trends, the oil and gas industry is known for showing less capital discipline as prices increase. Moreover, the focus has been shifted to the core business and other areas such as green energy and sustainability. Therefore, the regular assumption that high oil prices lead to a slow energy transition stands defeated since the current trends show otherwise. Over 75% of the O&G executives agreed that if the oil and gas prices cross the $60 mark, then most oil and gas companies will boost their energy transition in the short run.
2. ESG Adoption In Merger And Acquisition Deals
The world has been witnessing rising oil prices since the beginning of 2021, which is riding on the wave of recovering demand and limited supply from OPEC. The current capital discipline is the primary reason behind the slowdown in upstream M&A or Merger and Acquisition activity. The barred visibility of buyers into the seller’s carbon profile and an increase in their assets are also major factors. The companies which are supporting the Environment, Social, and Governance ESG goals are now coming to the front line.
3. Business Models Cater To The New Energy Era
The Oilfield service OFS sector had cut down costs and run optimisation procedures on the operations to minimise the impact of the pandemic and come to their original state as before. However, while the sector was lately dependent on the traditional upstream cycles, the recent revamping towards rapid energy transition has shifted the magnitude of O&G revenues and spending. Fuel and energy margins are also largely at the mercy of different price cycles. With a decrease in spending, the OFS companies are working towards a new strategy for the future of energy. With concurrent efforts for decarbonising upstream projects and subscription-based revenue models on the drawing table, one can safely state that the picture for the clean energy future is now clearer.
4. Convenience Over Fuel Offerings
The later disruptions created in the oil and gas industry by the advent of electric vehicles and traditional fuel systems are also facing stiff competition from newer modes of low emission fuels like hydrogen fuel cells and other renewable sources of energy. Due to this, more emphasis is on developing technologies that can make the traditional fueling more environment-friendly and conventional vehicles less overlapped by electric vehicles EVs.
5. New Energy Enabling Workforce Growth And Retention
The goal of companies involved in oil and gas energy is now looking to converge the energy marketplace trends, and the changing expectations of employees are prompting the oil and gas companies to reinvent their workforce dynamics. To understand the stated employee needs, it is again essential to understand the industry-specific requirements, and companies in the oil and gas industry should make the most of this opportunity.
Role Of Traditional Energy In The Shifting Scenario
The shifting scenario is clearly in favour of newer forms of energy when talking about fuel retailing. However, traditional energy still accounts for over 84% of the world’s energy, and hence, it is a governing factor when it comes to powering machines across the globe. The role of traditional energy will be mainly towards providing the best it can using current resources which also drives dependent industries such as the OCTG industry making tubular products. Traditional energy aims to grow along with futuristic technologies.
As the world is set on a path of recovery in 2022, swimming across the waves of the COVID-19 pandemic, the oil and gas industry seems to have developed an immunity against the pandemic stagnation, but the challenges don’t stop there. The current year brings numerous opportunities for companies, and those already on the path of reinventing their business models and working dynamics will surely see a brighter future towards the end of this year.