The Oil and Gas Industry in the Adversity of the Covid-19 Pandemic
The COVID-19 pandemic of 2020 is the highlight of modern history’s worst health crisis causing global economic contraction in all sectors. The Oil and Gas industry, in particular, has experienced a double blow as the industry also faced a structural decline in fossil fuel production.
As preventive measures were undertaken to contain the spread of the virus across the globe, a strain on the global demand and supply of oil and gas products in the already volatile market has greatly affected our economies. The decline in demand for oil due to the reduction of business activities because of social distancing protocols has led to the collapse in oil prices as ruled out in the negotiations between OPEC and its allies during the first weeks of the global lockdown.
Another factor that contributed to the further decline of oil prices was the dispute between Russia and Saudi Arabia- two of the major global oil producers- to reduce oil production, leading to a price war between the two countries. Furthermore, as the energy sector is the largest driving key in the economy of most GCC countries, the redirection of funds to help citizens and the private sector to cope with the impact of the pandemic was forecasted to further add in the economic recession.
The impact of Covid-19 on the Oil and Gas Industry
There was a significant decrease in investments in the upstream sector of the industry. As the global demand for crude oil dropped because of travel restrictions, extraction and production of crude oil were also forced to trim down. The figure below shows the decrease in investment in different oil production sources.
The reduction in investments in capital cost for the upstream sector has also impacted the midstream and downstream sector: as production cost is cut back, storage and transportation of crude oil is also reduced. To avoid oversupply, market production also decreased.
The resiliency of the industry
As the pandemic eventually subsided and travel restrictions eased, the UAE’s economy has substantially recovered owing to the strong rebound in construction, tourism, and higher oil production in line with the production agreements of OPEC. The pandemic has also prompted the diversification of our exports into renewable energy, in response to the continuous decline in fossil fuel production.
The crisis of decline in oil prices has also constrained the country to step up in diversification, as the pandemic has showcased our high dependency on oil. Moreover, it has opened an opportunity for GCC nations to further pursue knowledge-based post-oil economies – creating products and services based on activities centered on knowledge and technological and scientific advances.
It is expected that digitalization in the industry will gradually be prevalent. The pandemic has generated a sense of urgency in the adaption of technologies and strategic innovations to improve efficiency in operation, enhance the safety of assets, and, as a step towards energy efficiency, reduce carbon footprint.
Although the global economy will ultimately recover, it is seen that the oil and gas consultants industry may not fully recover as seen pre-pandemic. The whole industry, instead, will face a transformation in its whole structure. As we face the “new normal,” the industry will also be shaped and transformed to conform post-pandemic. Such transformations are essential for the longevity of the industry.
The impact of the Covid-19 pandemic has affected the industry in both a positive and negative way. Looking beyond post-pandemic, the industry will definitely continue to face more challenges, yet transformations will also be expected. The Oil and Gas industry will continuously reconfigure its structure to adapt and overcome, and such crises are to be catalysts that will bring forth new future opportunities and breakthroughs.