The oil and gas industry has historically been resilient, weathering crises, disruptions, and economic downturns. But just like everything else in 2020, the disruptions caused by COVID-19 have exposed weaknesses throughout this sector.
Many factors prepared the soil for disruptive processes, like increasing environmental concerns, difficulties with finding young talents, and low investment returns over the last few decades. Mid-year of the pandemic, we see which forecasts came into reality and what challenges are making the most profound impact on the industry as a whole.
What are the key challenges changing the oil and gas industry right now?
1. Demand crunch
Starting in 2014, oil prices began to skyrocket. While supply has grown considerably since then, demand was in decline before COVID. Also, it was exacerbated by the global lockdowns in early 2020. Decreased travel and commuting, along with the closure of operations for some refineries and shipping lanes have resulted in a supply glut and demand crunch.
2. Political risks and trade tensions
Global political pressures have also taken their toll on the oil and gas industry. Also, they have increased the risks associated with these often international enterprises. Ongoing tensions between the US and China, the EU and Russia, throughout the Middle East, and the uncertainty surrounding this year’s elections worldwide all ripple through the economy and have altered global oil prices.
3. Pressure for environmental concern
Increased public concern for the oil and gas industry’s impact on ongoing climate change has led to intense media and political scrutiny. It concerns not only oil and gas as products but the methods companies use to extract these resources. As of late, carbon taxes have been floated as one way to hold companies responsible for using potentially harmful resources.
Carbon taxes and additional restrictions on oil and gas production will be one of the key challenges for companies in the upcoming years. According to a report by Accenture, carbon taxes could boost oil prices from $5 to $8 per barrel of oil equivalent (BOE).
4. Critical jobs decrease
Due to price volatility and the uncertainty caused by the COVID-19 pandemic and international tensions, between March and August 2020, the oil and gas industry in the US lost more than 100,000 jobs. This is the largest employment loss in the sector’s history, according to a Deloitte report. The situation is worsening with fewer graduates in the geology and petroleum management fields. It possibly happens due to the industry’s association with climate change. This leads some experts to believe the industry may struggle with staffing shortages long after the current economic climate settles.
5. How can oil and gas companies overcome the current challenges?
Remaining vigilant and aware of changing market conditions, being flexible, and efficiently integrating with reliable partners will work wonders for oil and gas operations in any economic climate. Despite the economic challenges, PLS continues as a top-tier 3PL in helping our partners in the oil and gas sector to keep their businesses up and running.