Energy world today: Where are we heading?

Last time we discussed the state of the energy industry, its environmental impact and its effects on traditional business models during one of the most challenging times in the 21st century. Today we are going to look closely at how the industry is shifting. The global socio-economic mutations are rapidly adjusting to the COVID-19 context, but not fast enough to get ahead of the curve. In this situation, most energy companies are trying to mitigate the damages. Others are getting ahead of the competition. And some are repositioning in an effort to help now and be relevant in the future.

With the recent apparent breakdown of the OPEC+ agreement Saudi Arabia and Russia have started a mute war on oil price. The first bold move comes with the increase in oil barrel production planned for April. Saudi Aramco will see a 1 million increase to 13 million barrels per day (Mmbpd). This trend is picked up by the neighboring countries with ADNOC increasing its supply to 4 Mmbpd with plans to reach a 5 Mmbpd target.

But this action won’t affect only Russia. The United States were the biggest producers in 2019 with 17.94 Mmbpd and an 18% market share. The US is seeing dissension in its approach of the current pandemic but still responded to the current energy climate. Mike Pompeo, the US secretary of state made a direct appeal to Saudi Arabia to ‘rise up to the occasion’ and cease its current war with Russia. It goes without saying that with the current oil price drop – of 20% globally - the US cannot hold indefinitely against the Middle East. Chevron will reduce its capital expenditure by one-fifth, a staggering sum of $4bn. Philips 66 will cut spending by $700m to $3.1bn across the year. They are joined by international giants like Shell and Total who are also planning to cut spending by $5bn to $15bn and $20bn respectively. This financial restructuring, together with other major trends such as China’s (5% of world oil production market share) faster deceleration in energy demand Iran’s (4% of world oil production market share) socio-economic structure completely overwhelmed by COVID-19 will definitely shake the Top 10 largest rankings of oil producers of 2020.

This glimmer of the current status-quo may provide clean energy companies to provide innovative solutions to the current crisis that could offer the same input without the long-lasting effects of fossil fuels. However, clean energy companies, like everyone else are facing the same economic slowdown. Unlike their counterparts, the clean energy sector does not benefit of a safety net. The draft of the 3rd phase of the US stimulus package contains no energy related funding beyond $3 billion aimed at the strategic petroleum reserve. If we look at the economics of the renewable energy, the oil and gas lower prices will put under pressure the renewable energy sources. This in turn will dramatically affect the supply chain itself. Without a proper policy support. The clean energy sector will be forced to wait for credit markets to recover, allowing cheap hydrocarbons and fossil fuels to negate any developments seen in 2019.

With the worst oil crisis in 100 years, the fact that the oil industry is struggling to cope with the effects of COVID-19 crisis leaves us in an urgent need of innovation. The energy industry will not be the same after this crisis. The Oil and Gas industry was already under pressure before the current crisis and once the world emerges from the Corona virus pandemic the energy industry will need to genuinely innovate and collaborate. Simply cutting oil industry costs & day rates, as after the previous downturn is not going to be sufficient. From here on only companies with a genuinely novel and unique proposition and technology will be able to deliver improved value to the end customer.

There is substantial work to do in the environmental remediation of the legacy created by the oil industry. There is also substantial improvement to be made in environmental practices in the day-to-day work carried out to bring essential oil & gas to the global market.

This is a situation where those who dare will lead the industry.