Post-Pandemic Challenges in Oil & Gas and What it Means for the Engineering Services Industry
Author's Corner
In his white paper, PK Das, Engineering Services Director - US Sales & Client Relations, explains some of the post-pandemic challenges in the oil and gas industry.
Please click on the video to the right to learn more about PK, his paper’s key points, and his motivation for writing on this subject.
To discuss this white paper in more detail, please reach out to PK using the information provided at the bottom of the page.
The oil & gas industry remains one of the most powerful economic forces in the world, from energy and utility to transportation and the manufacture of petrochemical products (such as plastics, polyesters, and other byproducts). Still, the industry has seen a tumultuous swing over the recent years.
The oil & gas industry was already in trouble before the pandemic, as problems were heightened because of the geopolitical price wars between various oil producing nations. However, the pandemic has made matters much worse for the sector as well as its lifeline engineering services industry.
As per a recent report by GlobalData, the number of oil and gas contracts fell from 6,971 in 2019, with a value of $151.06 billion to 5,014 in 2020, totaling $94.29 billion. According to Pritam Kad, an Oil & Gas analyst at GlobalData, “The significant drop in contracts and contract value was primarily attributed to industry slowdown following a steep decline in crude oil prices, as well as the effects of the COVID-19 pandemic and lockdowns in 2020. These further led to reduction in capital expenditure from many producing companies and increased project cost with deferred timelines.”
Normally, challenges can range from dwindling reserves to geopolitical turbulence and market volatility to environmental regulations and demand for renewable energy, all the way to the digital disruption and transformation for the industry stakeholders. From concerns of “peak oil” to exploring the greener and cleaner alternatives, oil companies are increasingly under pressure from shareholders and regulators to invest in renewable energy for a low-carbon future.
As for business segments, the upstream players in exploration and production are trying to cope with heavy upfront exploration investment costs, the midstream sector is struggling with the often-overdesigned pipeline, storage and other specialized equipment, and the downstream firms in the petrochemical processing sector are finding it difficult to compete in a global marketplace where price points are tightly contested and their refining capacities tend to bottleneck.
To add insult to injury, there is now also a widespread talent shortage as an older workforce phases out. As a result, more Oil & Gas industry companies find themselves resorting to outsourcing their non-core engineering requirements. This is not only to benefit from a more flexible human resources bandwidth, but also to be able to mitigate the cost pressures and gain faster time-to-market advantage while streamlining their existing processes. Therefore, oil companies are forced to cut costs, innovate, and adapt to newer technologies -- all at the same time.
Ever since its inception in the mid-nineteenth century, the Oil & Gas industry has had its own way of functioning in a “parallel universe” through various archaic processes and rudimentary mechanical systems. A thorough upgrade has now become the need of the hour. Many within the industry have adopted the ‘Fourth Industrial Revolution (4IR)’ or Industry 4.0 strategies to overcome the above-mentioned challenges by collaborating with leading engineering and technology firms.
For example, predictive analysis and preventive maintenance solutions can come in handy through the application of sensor-based Industrial Internet of Things (IIoT) and Artificial Intelligence (AI). Also, with 5G on the horizon, transmission latency between the cloud and device controllers for conventional wireless communication are soon expected to be vastly reduced.
Similarly, the blockchain can facilitate transparent smart contracts to agree upon the terms and conditions up front with potential Engineering-Procurement-Construction (EPC) bidders and various engineering service providers alike through its decentralized, distributed, and public digital ledger technology.
Drones and UAVs have entered Oil & Gas in a major way for remote monitoring and surveillance and safety of workers. Data Analytics, Machine Learning (ML), etc. are expected to give a big boost to Oil & Gas companies in analyzing big data sets and provide powerful insights.
As a result, seeking support for engineering services in the industry is on the rise. According to a recent study by Mordor Intelligence market research firm, “The Oil & Gas Engineering Services Market is expected to register a CAGR of approximately 7% during the forecast period (2021 - 2026).”
Although the competitive landscape of the Oil & Gas engineering market happens to be fragmented due to the presence of numerous global players of small, medium, and large sizes, there is still a piece of the pie for this action; from Oil & Gas production to transportation to floating production storage and offloading (FPSO) vessels to storage to refinery.
As for the United States, the new administration has put the country back into the Paris deal as of January 2021. President Biden pledged to cut U.S. emissions by about 50% from 2005 levels by 2030, targeting greenhouse gases from power plants, buildings, and the transportation sector.
However, according to a recent report published by Columbia University’s Center on Global Energy Policy and the University of California, Davis Institute of Transportation Studies, "…these interventions may not achieve their goal of reducing oil demand.” Further, according to a recent report by McKinsey & Company, “…at the beginning of the crisis, plunging fuel demand in many key markets was reflected by prices: by the end of March 2020, the price of gas hit a 30-year low, whereas the price of oil, also affected by supply shocks, showed the largest single-day decline in the past 22 years. In 2020, total energy demand drops by 7 percent due to reduced (economic) activity because of COVID-19. It takes until late 2021 to see energy demand return to preCOVID-19 levels."
Whether it is due to temporary trade conflicts, global price wars or the pandemic of recent times, it is evident that the industry is going through an all-around transformative period in its history. As such challenges and complexities abound, not every company is content looking at the ongoing crisis and the outlook the industry can offer for the future. As for the industry’s lifeline, global engineering service providers are frantically trying to make sense of it all just to get a proper direction in the coming decade. The choices the world leaders and various companies make and the goals they prioritize will decide the future course in the present decade.
References:
https://www.mckinsey.com/~/media/McKinsey/Industries/Oil%20and%20Gas/Our%20Insights/Global%20Energy%20Perspective%202021/Global-Energy-Perspective-2021-final.pdf
https://www.mordorintelligence.com/industry-reports/oil-and-gas-engineering-services-market#
https://www.transparencymarketresearch.com/
https://www.oilandgaseng.com/articles/oil-and-gas-demand-likely-to-grow-despite-pandemic/
https://www.oilandgaseng.com/articles/ai-ml-goes-mainstream/
