The oil industry only has two choices as it reshapes itself after the oil price crash — either become broader energy firms or pursue a narrower specialization in oil and gas, Energy Voice reported, citing a new report from PwC.
The coronavirus pandemic brought a collapse in oil prices and demand which makes the choice for oil firms more urgent than before the crisis. Oil companies have “years, not decades” to decide which strategy to pursue and they should start choosing now, according to PwC as quoted by Energy Voice.
In a recent analysis of the UK offshore oil and gas industry, PwC said that crises have forced the oil sector to reinvent itself many times in the past, but this time around, the COVID-19 pandemic has brought the energy transition to the forefront with more urgent choices for the industry to make.
“However, what makes this crisis unique is how it may accelerate underlying structural trends, such as Environmental, Social and Governance (ESG) themes and the energy transition,” PwC says.
“Crisis after crisis, the sector has been able to recover and reinvent itself through innovation. But as the full extent of the damage wrought by COVID-19 becomes apparent, this time looks very different,” according to PwC. Related: Should U.S. Shale Be Worried About A Chinese Takeover?
For example, oil majors can no longer rely on the assumption that their downstream businesses will provide a buffer against low oil prices in the upstream business, because the pandemic-inflicted shock showed that demand for both crude oil and refined petroleum products can be battered at one and the same time. So the sector should be ready for a different and more complex future, according to PwC.
Just before and after the coronavirus hit the global economy and the oil industry, all European majors committed to become net-zero businesses by 2050 or sooner.
Spain’s Repsol was the first oil and gas company in the world to pledge in December 2019 to net-zero emissions by 2050. In just five months, Repsol was followed by BP, Eni, Shell, and Total – all of whom committed to net-zero emissions by 2050.
Now these same majors must consider where they will go from here.
By Tsvetana Paraskova for Oilprice.com
ADVERTISEMENT
More Top Reads From Oilprice.com:
- Oil Spikes Despite Pandemic Uncertainty
- How Accurate Are EIA And API Inventory Reports?
- Tesla Could Launch A Million-Mile Battery This Year
The industry will emerge leaner from this ordeal but it will have no alternative but to cut dividends drastically if it is to survive rather than sink under the weight of its outstanding debts. Many of the oil majors are already opting for tasking this route.
Moreover, the industry is set to see its total annual revenues plunge by $1 trillion this year from $2.47 trillion in 2019 to $1.47 trillion this year. The projection for 2021 is $1.79 trillion. This means that the industry will have to focus all its available resources on its core business, namely oil and gas.
There was no ambiguity whatsoever when the CEOs of ExxonMobil and Shell the world’s two biggest supermajors recently made their positions on peak oil demand very clear. Darren Woods the chief executive of ExxonMobil declared that “the long-term fundamentals that drive our business have not changed." This was echoed by Shell’s CEO Ben Van Beurden who said that it is entirely legitimate to invest in oil and gas because the world demands it". "We have no choice."
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London