Moderate

Oil & Gas

The push to achieve net zero carbon targets is already stimulating a structural shift in the sector.

Sector trends & challenges

  • Reduction in demand

    With global oil demand only expected to return to pre-COVID levels by end of 2022, managing supply and stocks will be critical.

  • Renewable Energy Policy

    Many national governments have recently announced plans to reduce emissions by radically scaling back use of fossil fuels. New policies include investment in clean hydrogen, CCS, nuclear energy R&D, and wind farms.

  • Cost optimisation

    With continued investment in the green energy transition, operators will need to continue identifying efficiencies to protect bottom line and bolster liquidity.

Sector rating profile

Oil & Gas

COVID-19 has severely impacted activity across a wide range of sectors and the demand for petroleum in 2020 and 2021 has fallen materially since the end of 2019. Daily demand for crude oil for example decreased from 100.1 million barrels per day (mb/d) in 2019 to 91.3 mb/d in 2020. The forecast recovery of demand is not expected to even return to 2017 levels during 2021. Although, more recently, we are already seeing signs of oil prices recovering back to its previous three-year highs, with Brent Crude soaring as much as $80 during September 2021. With current supply constraints, global lockdown easings and an increased demand for energy commodities ahead of the winter period (particularly in China), analysts are expecting the trends in price movements to likely continue over the course of the coming months.

In the meantime, the trading environment has been tough throughout the supply chain. COVID-19 may hasten the ongoing decline in exploration activity, and oil field services are likely to experience ongoing operational challenges. Governments may have to intervene to support local refinery activity where aggregate demand remains low.

Over the longer-term national governments around the world have recently announced plans to reduce emissions by radically scaling back the use of fossil fuels. In December 2020, the UK government published a paper titled ‘Energy white paper: Powering our net zero future’. The 170-page document sets out a plan to ensure the UK has net zero emissions by 2050, although a lot of the changes to reach this target will need to come much sooner. The paper highlights the use of clean hydrogen, carbon capture and storage (CCS) and nuclear energy R&D as the main tools to remove our dependency on petroleum. More specific plans include banning the sale of new petrol and diesel cars by 2030, funding of £3 billion to improve home energy efficiency and support for a large number of new offshore wind farms.

Similarly, in the United States President Biden has been quick to put climate change at the forefront of his administration’s agenda. Executive orders have been signed which are designed to freeze new oil and gas leases on public land and double wind-produced energy by 2030.

The impact of these on balance sheets, cash flows and wider strategic focus are significant. Managing cash flow and working capital will be critical as the sector pivots towards a greener future.

Find Your Expert

James Fagan is Interpath Lead for the ENR sector, which includes Oil & Gas as one of four core segments. Matt Little leads our approach to Oil & Gas nationally, with support from Geoff Jacobs on the Oilfield Services sub-sector. For a full list of our senior people with experience in this area, use the button below.

Our senior team