Oil and Gas - A view on the industry status

Unprecedented Status

The oil & gas industry is in an interesting phase of its existence. The previous downturn in the oil industry in 2015 seems like yesterday to me! And here we are in a situation few would have predicted. The oil industry remains critical to the global economic engine. Some may not like that fact, but for now it is. When the great global engine slows down the oil industry is badly affected. There are some interesting things going on and each one on its own would merit serious reflection. All of them at the same time, well, that’s really making life interesting. Interesting times means there are opportunities abound.

The drop in oil demand is unprecedented. Some 10-15% reduction is extraordinary. This is causing oil prices to drop, operators to cut back spending and some smaller or older wells will be shut in.

The rise of renewable energy (exponential growth curve, we know all about that kind of growth now) and the constant reduction in costs of renewables puts pressure on oil & gas.

An Environmental Concern

A growing awareness and concern for climate change and the impact this has and will have around the world is starting to sway governments into action and is starting to make an impact on how people are going about their life. Covid-19 might have switched the focus short term, but this is an issue that won’t go away.

There is growing concern around the world on environmental issues. This may be plastics and how they remain in the environment, leaking of methane from oil and gas wells, oil sludge storage and oil spills and drilling waste being left for future generations to handle.

A Focus on Innovation

As an industry the oil industry has a long way still to go. The lock down of much of the industrialised world in the end only reduced oil demand by 10-15%.  The idea that in a short space of time the world won’t need oil and gas is unrealistic. The opportunity for the industry lies no longer in reducing day rates or laying off some more people. The world is changing and the future in the oil industry will belong to those who can bring genuine new technology, proven in the field to market quickly.

The industry has long had a reputation of being slow to take up innovation. That won’t be good enough going forward. There is competition now and a much greater focus from governments, consumers and NGOs. None of that need be an issue. The oil industry is home to amazing technology and capabilities. Becoming more efficient means lower impact on the environment as well. That is a good thing.

Taking Action…

Governments too, have a role to play. There need to be clear signals through regulation, that the environment is not an add on, not a “nice to have”. The oil industry has fuelled an enormous economic growth and most people today are better off because of it. There is however a lot of cleaning up to do. Leaving the remediation of oil industry waste to future generations or governments or the UN is no longer acceptable. The industry needs to step up if it wishes to keep its social license to operate.

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Business Models in the time of Coronavirus

A general consensus is that the Oil & Gas industry is very much a traditional industry. One, where contracts are won and executed over extensive periods of time. One where even winning said contracts may take even more time than executing them. It seems quite paradoxically when we are in the business of ‘making energy’. Energy that puts the world in motion and drives innovation at every other level of our society. So why wouldn’t the Oil & Gas Industry embody exactly that. Innovation that drives innovation.

First of all, what do we mean by a traditional business model. It’s quite simple and a basic economic law – supply and demand. On the supply side we have countries with massive resources, such as Saudi Arabia, the US and the UAE. Each country has private or government-owned companies that either cover the drilling and processing aspect of the industry or the whole supply chain spectrum. The overall objective is to balance the production of oil & gas to avoid market saturation and maintain a profitable price per barrel of oil. It’s on this price that all other industries are basing their own financial structure, knowingly or not.

On the demand side we have customers. We know who they are: governments, businesses, us, everyone in the world. But the ‘us’ of now are different from the ‘us’ from 20 years ago. McKinsey Consulting nailed this in their ‘The Oil & Gas Organization of the Future Report’. Demographically, the bulk of the active labor force is shifting to the millennials. On the operational side with nearly 100% but some also moving up on the executive ladder. And the core drive of a millennial is data. If they require data in their work, they require it in their consumption as well. Internet of Things, Industry 4.0, 5G, all are example of technology driven by data, aggregated in a platform that enables digital control over physical products. And that platform will need extensive amounts of energy. So how rentable it is to just think of Oil & Gas as two boxes that exert opposite forces on a resource. A resource that is not as scarce as we believe. A resource that has several ‘greener’ alternatives, creating a market that is ever increasingly aggressive.

But let’s not get ahead of ourselves and look at the elephant in the room. COVID-19 managed to reveal both our digital dependency and our social individuality in the same time. The internet allows us to work from home, stay informed, connect with our friends, buy our products and so on. And with each action that we do we reveal a little bit more of our profile. But it does not substitute the human interaction. The best way to express our individuality is face-to-face. And why is that relevant? Because companies in the Oil & Gas industry will be facing clients more digitally adept, persuaded by the power of Big Data but won by Customized Service. After coronavirus, clients and companies alike will know what works on the computer and what just does not. And if it is the latter, the reason is as simple as not being service-centric.

The future business models in the Oil & Gas industry will not start at the resource, it will start at the end-user. It is a manner of reverse engineering and instead of focusing on the technical aspect, we are focusing on the human one. Data can create order from chaos on the technical aspect. But only people can truly create a customized experience. And that is the crux of our believes here at SAS Environmental Services.