POST CORONAVIRUS RECOVERY IN THE OIL & GAS INDUSTRY
Investors viewpoint of the coronavirus in oil & gas sector
Most investors are still puzzled and have not taken a bold move to advance their portfolios in the sector. Most of their judgements are clouded by uncertainties and misinformed opinions peddled by ‘pump and dump’ schemes whose main aim is to create fear and channel investors to their products which makes them lose money.
In the on-set of the coronavirus, analysts in the oil & gas sector speculated a potential plummet in the product. Most investors chose to withhold their funds to observe the events unfold and only expected to get back to business once everything was back to normal.
On the other hand, normal seems to be quite hallucinatory, since the coronavirus is here to stay and the people have adopted a new normal. It’s the time when you need to be nimble and focus on what can work while ignoring the paradigm peddled by competitors.
Optimism is always the key to opportunities amid impediments. The question is, can you see the stars in the darkness of night? The coronavirus pandemic fueled fraudulent companies who dread competition to peddle fear and uncertainty in their move to pave way for monopoly. In turn, most investors in the oil & gas sector succumbed to the pressure and stepped back. On the other hand, few investors who could see beyond the smoke and mirrors managed to maintain their track and benefited immensely from the situation.
The actual impact of the coronavirus in oil & gas sector
Situations of crisis often have devastating impacts on the economy. Particularly global pandemics like the novel coronavirus impacts in almost all sectors of the economy. Their effects are always manifested in the socio-economic behavior of people. The virus is highly contagious and demands that people change their normal operations to adapt to the demands of the crisis. The coronavirus demands that people maintain social distancing as well as put on masks. It is as well recommended that people stay at home to avoid contracting the virus.
In the event of observing the demands, less consumption of the oil & gas products surfaced. People tended to stay at home to minimize travelling that could expose them to Covid19, most workers opted to halt their services in companies in fear for their health, most projects that were to be launched came to an immediate halt and many others.
It was expected that a surge in stock could creep in the oil & gas sector since the demand could reduce immensely. To avoid losses, most investors withheld their operations, as it was expected that total lockdown could be an alternative solution, consequently, minimizing consumption of the oil & gas products.
Coronavirus had a small impact on the oil & gas sector
Compared to other sectors such as tourism and entertainment, oil & gas survived considerably amid the crisis. The sector has a constantly growing demand for its products. The world’s population has soared over the past years and is continuing to attain unimaginable heights. Demand for utilities such as oil & gas product which is a key driver of economic development is as well increasing exponentially.
Emerging industries such as the petrochemical industries that manufacture substances like pesticides have grown considerably, this has, in turn, skyrocketed the demand for oil & gas across the globe.
Amid the coronavirus crisis, most of the oil & gas-dependent industries opted to increase their reserves to evade the impact that might arise from the disruption of the chain of distribution especially within the upstream side, coupled with the constant mushrooming of petroleum-dependent companies, the prices remained relatively stable and is still recovering from the mild fluctuations that were expected.
Skepticism as activists and the government pushes for reduction of carbon footprints
The coronavirus situation has fueled the operations of environmental activists as well as the government in the move to adopt green energy sources and to drop the fossil fuels. They have made moves to speculate that the virus might have been as a result of petrochemical impacts on human health. Some conspiracy theorists claim that it might have originated from a mining site.
The facts still stand out. Conscious control of carbon emission to the environment is one of our collective responsibility as humans. Various alternatives such as electrostatic precipitation and air purifiers are being advanced towards the maintenance of the carbon quantities in the air.
The move to bring to an immediate halt of the use of fossil fuel is still a misinformed concept that can adversely affect the economy. No political leader could allow the immediate halt of the use of oil & gas within their term.
Many investors have remained skeptical within the oil & gas sector due to the uncertainties revolving around it. Probable price fluctuations as large corporations continue to form mergers and control the market continue to scare small scale investors. As the large corporations team up for market control amid uncertainties, they tend to kill smaller firms that have not developed sufficient survival mechanisms amid crises.
An instance of short-term challenges in the oil & gas sector
With the declining demand for gas amid the coronavirus crisis, Shell has, however, unearthed more gas reserved. They have additionally set even-breaking prices of up to $2.5/MMBtu. The demand for gas has plummeted by up to 10%. Analysts speculate that it is expected to be unstable up to mid-2021 or even up to 2022.
North America has been the most affected by the flop in demand as a result of the coronavirus. At the beginning of 2020, North America emerged as the chief supplier of natural gas in the liquified state (LNG) across the globe. Their market analytics predicted a considerable increase in demand since they greatly lowered the prices of the product.
On the other hand, their production considerably surpassed demand as the coronavirus pandemic took a toll as a humanitarian crisis demanding a halt of most of the daily activities, consequently, introducing a new normal.
The new normal in the oil & gas sector as a result of the coronavirus pandemic
The crisis is gradually reshaping the oil & gas sector, unlike the predictions made by most analysts, the turn out of the coronavirus pandemic has taken a course that very few people expected.
So far, it is evident that the coronavirus might last longer than expected. Most researchers claim that it is living within us and might establish its niche as one of the perennial human diseases. Human behavior that was predicted to change immensely, is slowly regaining its original state. People have come to understand its nature and have gained confidence in its curability.
Therefore, the demand for oil & gas has been regaining its initial state steadily, since the fear that was within the masses has considerably been dissipated. Most industries especially in the manufacturing sector, have regained their normal operations and the demand for oil & gas has risen immensely. The companies and firms that were affected by the pandemic and had their stock surge have gotten access to the market with the increasing versatility of the oil & gas products within the global economies.
The transport sector has as well regained operation as usual, a positive correlation has emerged from the transportation sector since the automobiles carry less than their capacity due to the social distancing effect.
The macroenvironment in the long-term basis of the impact of covid19 in oil & gas sector
In 10 years, instability within the sector of oil & and gas is expected to soar. Investors are expected to remain cautious on the potential price fluctuation in the oil and gas sector. The geopolitical constraints are as well expected to gain momentum considerably within the sector.
As the big oil & gas corporations continue to explore more reserves and increase production efficiency, the quantities of the oil & gas produced are expected to increase considerably for the given period. Analysts as well predict a steady decrease in the oil & gas prices with the possibility of resulting in huge losses for the investors.
The curve of upstream cost is expected to remain steady as a result of improved mechanization within the sector. This has been enhanced by the introduction of the big data and AI technology with which disruptions and potential accidents are predicted, this is of particular concern with the offshore production schemes. Therefore, predictably increasing production rates with declining demands calls for a sensitive approach.
Geopolitical concerns are likely to give a huge blow to the oil & gas sector by 2030. With the rising pandemics that are critiqued to be as a consequence of climate change, which as in turn, resulted in the emergence of novel situations such as pandemics and devastating health effects not only on humans but also in other living organisms.
Competing energy production firms, especially those dealing in renewable sources have hyped the situation of the pandemic, spreading uninformed findings against fossil fuel. The oil & gas production may reach its peak by 2030, henceforth, it is expected to go down considerably from the environmental concerns.
It is evident that oil & gas are nonrenewable resources and are expected to be depleted someday on earth. So far, the mechanization within the sector has been made sufficiently robust and is expected to last for quite some time. However, as the reserves continue to extend deeper from overexploitation, it is expected that the upstream cost curve will increase immensely and it will sound a wake-up call for humans to turn their back on the fossil fuel.
Coronavirus might have suppressed the energy debate
The attention of the masses as well as of the government is focused on the economic recovery on all sectors. People are also healing from the impacts that the coronavirus has caused on their daily operations. This in effect, has suppressed the constantly heated debate on the energy sector. Countable demonstrations on the energy sector have been observed within one year, unlike in the past where heated debates and campaigns against the use of fossil fuels were a daily experience.
On the other hand, analysts suggest that the movement is alive and kicking, it might just be brooding to pave way for substantial economic stability. Once there is an established new normal or total recovery, it will surface with greater agility that will in one way or another, change the course of the exploitation of oil & gas.
The implication of the coronavirus in oil & gas companies
Establishing sustainability in terms of long-term resilience to economic blows as well as the protection of employees from the devastating impacts of crises is a dream for many corporations. Most companies in the oil & gas sector have been skeptical in expanding on their investment. This is as a result of their move to keep employees in constant pay as well as to remain resistant to potential risks that might arise from the global pandemics like the coronavirus.
Maintaining the health and safety standards for employees is a key driver to efficient productivity within a firm. The coronavirus poses a huge threat to human life with the potential risk of death. Keeping the employees at a stable mental & physical position while they attend to their duties within the production chain builds their trust as well as confidence, which makes them work with morale.
However, the moves that establish resilience instead of risk-taking have direct impacts on the economy. For instance, most investors in the US onshore industry were reluctant to make an investment move. The uncertainty on whether the working environment will be favorable for the employees puzzled the CEOs leading them to focus on the employee wellbeing rather than the bigger picture of seizing the looming opportunities amid the pandemic. Despite the big blow caused by the coronavirus over the past months, the oil & gas sector has remained appreciably resilient. The future of the sector might not be quite clear at the moment, but it is with much certainty that the worst has been experienced, therefore, the future might pose less impact than the hitherto crises.
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The impact of coronavirus in oil and gas industry has actually become more intense than we may expect.
The reduction of refinery product consumption such as gasoline, diesel and also avtur which plunge due to movement restrictions of transportation we actually also facing the acceleration of electrical vehicle introduction era in which we can see more and more affordable electric vehicle is coming.
That is why the future of oil and gas will be more in energy and petrochemical rather than to fuel product.
We can see this with more and more refinery trying to upgrade their facility to be able to produce more and more petrochemical product. Which it is predicted to be higher demand, especially with this pandemic we know more and more polymer is required to produce medical equipment and also PPE.
Even with the vaccines, we still see the demand for PPE as it is still advise to use it till the herd immunity is achieve.
Furthermore exploration and production will also be less, as more upstream project is being delayed due to wait and see from the company with the forecasted of demand and also Company is adjusting their budget to add all health measure of coronavirus preventionto be added in their budget to execute their projects.
Thank you Erwin for sharing your comments regarding your view of the situation. You are right in many aspects. First of all it is true that electrical vehical era is practically here with the vehicles more and more affordable, plus the drop of fuel products consumption beacuse of the pandemic, is adding higher value to chemicals and electrical sector rather than fuel. Even the down on oil prices, that put the projects on hold or just stopped and investors waiting for a market reaction, fuel is still the engine of this world and we will witness how everything will be back on track, vaccines will be a huge help on that too, and thus is what will be at least till we have oil reserves in our planet.