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McKinsey & Co: Oil and gas companies will need to transform in face of changed landscape

Oil&Gas Materials 4 September 2020 09:42
McKinsey & Co: Oil and gas companies will need to transform in face of changed landscape

BAKU, Azerbaijan, Sept.4

By Leman Zeynalova – Trend:

Oil and gas companies will need to transform in the face of the changed landscape, Trend reports referring to McKinsey & Co.

“The global COVID-19 pandemic caught the oil and gas industry unprepared for a completely changed landscape. Planes were grounded and cars parked. Countries outside the Organization of Petroleum Exporting Countries (OPEC) that export crude oil (known as OPEC-plus countries) initially turned up the spigots, and oil prices collapsed. Demand for transportation fuels fell by up to half, and storage tanks filled. That forced refineries to cut their rates or even stop production. Oil and gas companies experienced the sharpest shock they had ever seen, and it may also turn out to be their most enduring one.

“Long after countries tentatively emerge from quarantine, constantly on the lookout for another surge in COVID-19 cases, the oil and gas industry will face the twin specters: sudden travel interruptions (and longer-term demand decline caused by an economic downturn) and a rise in telecommuting (and the accelerating shift to greener energy sources). We expect the global growth in hydrocarbon demand to peak in the 2030s. As it does, it will expose excess refining capacity and put downward pressure on profits. Adding to the demand-side challenges are vacillation over regulatory policy, the possibility of a breakdown in OPEC’s uneasy production discipline, and the chance that refiners will prolong the glut in petroleum-product inventories by increasing output as soon as their margins improve.

“To adjust, oil and gas companies will have to transform radically. Those that succeed will shape the industry’s future; those that fail will become consolidation targets. Even among companies ultimately acquired, there is an important benefit to getting as far down the path of transformation as possible. The further they progress, the higher their valuations will be.

“Many have already begun to react. As in past downturns, they are cutting headcount, reviewing operating expenses, and curtailing capital expenditures. Such incremental changes are a start. To emerge from these challenging times with the capability of delivering another decade of long-term growth, companies will have to go much further. They will need strong market perspectives and a clear strategic vision informed by five fundamental changes that define the current downturn,” the company said.

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Follow the author on Twitter: @Lyaman_Zeyn

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