Post Covid-19 Future for Oil and Gas Industry

For a lot of people, 2020 will probably go down as the toughest year that they’ve ever endured in their lives. It’s been a gargantuan struggle and one that’s been marked with stress, frustration and tragedy.

The COVID-19 pandemic has wrought destruction in so many ways. It has of course led to the widespread suffering and death of vulnerable people and the heartbreak of those they left behind, but the scope of destruction is wider still than that.

Economies around the world have fallen dramatically, with numerous industries facing their worst years on record and millions of people around the world losing their jobs or being dealt harsh financial blows. 

Almost every major industry has been affected on some level and the oil and gas industry is no exception to that. Although we are likely to be dealing with COVID-19 for a significant portion of 2021, there is now a little bit of a light at the end of the tunnel.

Ever since January 2020 when it first became clear that this was going to be a problem, it had been said that the only way to fully suppress the issue would be a vaccine, and now it looks like we finally have that.

With the hope that by the latter months of 2021, most people will be vaccinated and the economy will be back on the rise, what will that change mean for the future of the oil and gas industry?

Well firstly, it should be noted that this is one of the industries which has seen a lot of damage. Oil and gas has a history of turbulence anyway, with demand constantly fluctuating and prices doing so as a result, but the early part of 2020 saw a staggering fall.

The attempts to mitigate the spread led to the demand for oil and gas falling to record lows, which of course also meant lower prices. It was reported that the oil and gas union in Argentina had little choice but to accept a wage decrease of almost half, and numerous U.S companies have been facing bankruptcy due to an inability to service debt.

This means that a lot of jobs have been lost and the approach moving forward for the industry will have to be a more conservative one. The recovery is expected to be slow across the board, with certain sub-sectors doing better than others.

One such sector that is expected to do well is petrochemicals. The reason behind this is due to the fact that it can be readily applied to a number of different industries such as electronics and medicine.

And with production slowing down for a lot of those industries too, it is likely they will be searching for a reliable and quick solution which can be offered by petrochemicals. Companies that don’t focus on this at least on some level may want to consider angling their business in that direction moving forward.

It is also expected that the global commitment to greener energy sources will be a factor here. Before COVID-19, there had already been a decrease in demand due to this widespread reaction to climate change.

And now that a year has passed in which the industry has gone stagnant, building itself back up in a world that was already trying to find safer and more environmentally friendly alternatives is going to prove even more difficult.

While carbon emissions have since returned to how they were before the pandemic started, we did see the positive results for the environment that are possible if we take action, and this will likely breed a reluctance to avoid this action.

There are a variety of consequences to excessive oils and gas use on top of that and we can see it in the likes of the flaring and power grid instability issues in Texas. Oil wells are in operation without gas pipelines which has led to the excess gas having to be vented or ‘flared’.

As a result, there has been hundreds of millions of dollars of natural gas wasted, which is unacceptable in a world where the climate needs to be taken an awful lot more seriously than it is at the moment.

The solution to this problem, and various other ones will likely be found not in oil and gas but in switching to something which cannot be so easily wasted without the implementation of expensive pipelines. 

This also ties into the issue of oversupply, which was another problem the industry was already facing and one that has only gotten worse and will continue to get worse as the environmental protection approach ramps up.

As such, it is impossible to envision the prices climbing again anytime soon while this is still happening. So you’re probably thinking at this point that the future for the oil and gas industry is looking exceptionally bleak. 

But it’s not a completely hopeless situation for the companies involved. As we said before, this is an industry that has fluctuated a lot over the last twenty years or historically, companies with a better credit rating have managed to survive.

A higher credit rating allows for greater access to liquidity which can save a business that is suffering financially. For the major companies in the industry, this should allow for them to avoid massive financial disarray, or even bankruptcy. 

It’s arguable that this will remain a short and medium-term solution however, because the overall state of oil and gas is in jeopardy, and having the necessary finances to remain in operation is worthless if it is no longer a viable money-maker. 

The vast majority of smaller companies will not be able to make avail of this solution and time may be running out for them. 

As you can see, oil and gas in a post COVID-19 world is going to be an inexorably altered industry, but it’s also clear that this change was already set in motion beforehand. The world will be a very different place, some things may be changed for the better, but oil and gas is unlikely to be on the right side of our future.