There is no easy way to put this; COVID-19 has been a one-two punch to the oil and gas industry from the consumer and commercial angles. With no need to travel to the office, vacations cancelled, and cargo ships at a standstill, the oil and gas industry has had to reconsider its strategy for a future.
It’s clear that it will look very different from the recent past and will have to be much more sustainable. Add to this, increased tension with oil suppliers and you get the perfect storm that the industry is weathering currently. So how do you plan during such an unstable time? The solution lies in digitizing the oil and gas industry to prepare for the future of work and sustainability.
The duration of COVID-19’s impact on the industry is unknown, so devising a plan to adapt and digitize now is key to emerging from this global crisis in a strong position. While assessing the damage is important for moving forward, there are forward looking actions that oil and gas leaders can take now. After all, coronavirus is not the only factor that is fueling change in the industry. Sustainability, both in terms of the environment and company longevity, are on the minds of oil and gas executives around the world. They may be surviving this pandemic even though oil prices are plummeting, but there will always be another threat looming and growing expectations from investors to become more sustainable. This is why preparation now will pay dividends in the future.
The Current State of Oil and Gas
Oil and gas has been severely impacted by a chain reaction of events. Factories were forced to shut down, curbing the need for cargo ships and planes. Offices mandated professionals to log in from home, no longer requiring them to fill their tanks as often. Travelers cancelled their trips cutting the aviation sector’s typical 11% share of oil consumption in transportation. And as a result of all these realities, worldwide oil demand dropped considerably.
The Organization of the Petroleum Exporting Countries suggested global demand would fall by 6.8 million barrels a day this year. While the worst is most likely behind us, as governments begin reopening municipalities, an ongoing contraction from previous highs is inevitable for the foreseeable future. But with that said, the oil and gas industry has put in significant effort to cut supply in order to minimize the blows dealt by such a major drop in demand.
Digitization Helps Oil and Gas Get Creative
The closing of offices around the world has put remote work to the test. And with many oil and gas companies relying on highly manual and in-person processes, this transition presented a number of speed bumps. However, Galp, a Portuguese oil and gas company, did not have to experience these setbacks. Even with their employees logging in from home, they set a new digital data platform live remotely to empower their modern infrastructure. This is especially notable because it is a first for such a traditional company and industry, and it paves the way for more forward thinking players in oil and gas that want to succeed, even while remote.
Galp isn’t the only company in the oil and gas space that is putting digital transformation front and center during this unprecedented time. In the past few weeks a steady stream of companies announced they would allow their workers to work from home for longer and longer periods of time due to the persistent threat of coronavirus and the proof that remote staff can be productive.
Chevron CEO Mike Wirth in an interview with CERAWeek Daniel Yergin Stated “There will be a new paradigm on the other side of this. I don’t think that everybody will always work from home, but I also think the traditional model of where everybody comes to the same place and people get on planes to attend meetings … I think there will be changes” Twitter even declared that their employees would be able to work remotely permanently, so long as their positions didn’t require physical presence.
It’s entirely possible that other sectors will follow this lead and save on office space in the long run. And this, too, will impact oil and gas, as a lifestyle change away from the office will cut down on the amount of gas needed to transport professionals to offices and business meetings.
Across industries, cost reduction has been a focus to ensure business continuity. Many companies are considering shedding custom code in exchange for market-based, standard solutions to dramatically reduce costs. And shedding offices could also be an essential way to save money going forward. That’s why the oil and gas industry need to make changes now in order to make the most out of what could be a permanent shift toward remote work.
Digitization and automation help cut costs in a time where many other factors are largely out of a company’s control.
Shortening the Journey to Renewable Energy Slowly, and then all at once, governments around the world were required to lower emissions and investors wanted more sustainable energy investment opportunities.
In order for companies to properly measure and report out their progress, digital infrastructure must be in place properly. Repsol, Total, BP, Equinor, Shell and ENI are all part of the Oil and Gas Climate Initiative (OGCI) and have committed to a sustainable, “net-zero” version of their current selves in 2050. If the oil and gas industry standardized data collection, processing and storage going forward, then it would be much easier to determine which companies were on track to meeting their sustainability goals.
What’s Next for Oil and Gas
The oil and gas industry is due for a rebound, but the timing is unclear. A large reason for this is because oil and gas is at the bottom of the funnel for so many other industries. In order for oil demand to increase, so many other industries (like travel, manufacturing and retail) will have to open first to get people and products traveling again.
Shifts in demand happened so quickly due to travel restrictions and mandatory quarantines, but the return to previous levels of travel and consumer confidence will take time. The winners of tomorrow will extend beyond the barrel and invest in renewables, digitization and diversification today.
Benjamin Beberness is Global Vice President, Oil & Gas Industry Business Unit, SAP