In our very first edition of the WGC 2021 Interview Series, WGC Explores, we spoke to Coby van der Linde, Director CIEP and Maria van der Hoeven, Senior Fellow CIEP from Clingendael International Energy Program and discussed the current trends and challenges facing the oil and gas market.

1. What are the biggest trends and challenges facing the oil and gas industry?

It is not the first time that the oil and gas industries have been confronted with major supply and demand challenges and the subsequent price volatility. But this time is different because the pandemic caused a large demand shock in an already oversupplied market. Although some countries in Asia and Europe are beginning to recover of the first wave of infections, others are still in the thick of it and worldwide infections are still growing. Moreover, some countries are experiencing a second wave already, hampering their economic recovery. As long as either a vaccine or medication to reduce the impact of the disease on health care systems is not available and countries experience new waves of infections, the international economy, and with it, the energy industries will feel the impact.

Many countries are stretched to mitigate the impact of lockdowns, which will impact government spending in the years to come. At a time when many governments were supposed to speed up their energy transition and accompanying economic restructuring, some might find their ability to underpin these changes with spending limited, while other countries use the economic recovery spending to speed up their energy transition.  Market development uncertainties have increased for the oil and gas industry as a result because the response to the current health and economic crisis may differ among geographies.

Oil and gas companies must combine cost reduction with seizing new opportunities in energy transition programs around the world. It will lead to a critical assessment of the business model of the companies and the robustness to endure all underlying trends in all the geographies they are active. Currently, we see that cost are reduced with speed and investment levels have been adjusted to weather the first impact of the crisis, but more needs to be done to weather recurring flare-ups and economic lockdowns, while positioning for the ongoing energy transition.

For oil and gas companies, the big question is how to make energy transformation part of the solution for the current circumstances and carve out a new period of growth for themselves. The pressure from international organizations, such as the IMF and IEA, to engage in a sustainable recovery is mounting and the oil and gas companies are important players in such a recovery. In general, they have knowledge and capital to set the world on this course, provided government policies can underpin this effort. However, not all oil and gas companies nor their governments are positioned properly to make this change. Although oil but especially natural gas will remain important to satisfy world energy demand while decarbonizing, the shift of some geographies to cleaner fuels, electrification, digitalization and more decentralization of their energy systems will impact the market outlook for the medium to longer-term and thus the investment outlook.

Electrification based on renewables and (climate neutral) hydrogen will be part of the energy future, as will be a clean oil and gas value chain. The role of CC(U)S to achieve the climate goals should not be underestimated. Promising projects are underway both in oil and gas consuming and producing countries.

In the past few years ESG has gained importance. This was accelerated by the Covid-19 crisis. Values are being recalibrated. Economic gain and profit are no longer seen as values in themselves. ESG and stakeholder values are getting more and more attention from investors, governments, NGO’s and yes, also from shareholders. At the same time, increased (energy) poverty as a result of the current crisis requires renewed efforts to invest in the sustainable development agenda. Also, the current crisis is a wake-up call to preserve biodiversity and the realization that there is a price to pay for crowding into other species natural realm.

All the recent developments force us to rethink the future because it is unlikely that business-as-usual easily returns. Will we see an upsurge in innovative energy technology solutions or not? Will countries seek more cooperation, or will national approaches prevail instead? What is clear that we have to explore the future of energy anew, with an open mind and with new uncertainties to deal with.

On a personal note, we have all experienced the impact of the pandemic on our work, having to work remotely and travel less and closer to home. The availability of computer software that allowed us to work away from the office helped mitigate some of the lockdown effects and may change business travel for good. But we have yet to make up the tally of the impact of (perhaps prolonged) reduced social interaction on the health of humans and the ability to collaborate in the world. Many of the certainties in our daily lives have been upended and there is no guarantee that they will be upended only once. First, the world became smaller because of travel, now the world has become smaller because the lack thereof.

Coby van der Linde and Maria van der Hoeven will both speak at WGC 2021 in Daegu, Korea from 21-25 June 2021. To hear their views on the most significant issues shaping the global energy agenda, view the WGC 2021 program.

 

 

 

© WGC 2021 National Organizing Committee

Log in with your credentials

Forgot your details?