There is a quiet but confident sense of growing optimism about prospects for the oil and gas market. The industry is now a far cry from 2015’s oil price crash that led to widespread decommissioning and lay-offs. Whilst operators are still facing volatile markets, fluctuating demand, stringent compliance requirements and depleting reserves, there are ways to overcome these pressures to succeed and thrive.
Look no further than recent announcements of steady growth and stability from oil and gas companies, all of which bode well for continued recovery. A recently published KPMG report which noted that 85% of oil and gas CEOs had confidence in the industry’s growth – a sharp increase on previous years.
Moody’s outlook for the sector sounds a similarly optimistic note, reporting that upstream operators are starting to increase production, in turn helping midstream businesses and service providers. Overall, Moody predicts relative stability for the integrated oil and gas business over the coming months. Further research by Wood Mackenzie shows that investment in the sector is also expected to rise.
Changing fuels, changing priorities
Set against the backdrop of a wider shift in the global energy mix – with China and other emerging markets driving a sustained need for natural gas – the industry looks set to undergo yet more operational changes.
According to the BP Energy Outlook 2040, natural gas currently accounts for approximately 25% of the world’s energy consumption and demand is predicted to grow annually at a rate of 1% globally until 2050. In China alone, natural gas consumption surged 19% year-on-year in the first 11 months of 2017, further driven by environmental policies introduced by the Chinese Government to encourage the switch from coal to gas.
Growing demand for natural gas is driving companies to explore and extract in ever harsher and deeper environments, where even the simplest of logistical tasks can be difficult and costly – increasing the complexity of operations.
Conversely, in response to continued uncertainty, some major oil companies are hedging their bets by starting to diversify their portfolios and shift their focus towards the renewables sector and green technologies.
According to the BP Energy Outlook 2019, renewables are predicted to grow five-fold over the next two decades, jumping from a 4% share of the energy mix in 2016 to 14% in 2040. This is evident in the oil and gas sector where companies are stepping up their renewable energy commitments through acquisitions and investments in clean energy companies.
Opportunity from adversity
In the end, it all comes down to cost. The sector is more price-driven than ever, heaping pressure on everyone that interacts with the offshore supply chain. But this shift also presents opportunities – for example, operators are increasingly outsourcing projects and tasks that historically were managed in-house in a bid to reduce headcount and other related costs and to profitably refocus on their core competencies.
Suppliers now have to work harder and provide value-adds that augment their traditional service offering. A more holistic approach to day-to-day operational support, through management information collation and other insight-driven offerings, is now key.
The opportunity presented by this change is immense. But it requires service providers who possess in-depth knowledge of the oil and gas industry, as well as of businesses in the supply chain. And, as always, it ultimately boils down to trust in a partner that can handle complex time and commercially sensitive tasks with ease.
Opportunity from innovation
There is another force at play driving change in the industry. Innovation and digitalization, long embraced but often misunderstood, have the potential to effect radical commercial, operational and technical change. For service providers, embracing innovation sets them apart from the competition, especially when combined with effective cost consolidation.
Digitalization is now recognized as a force for business change - according to the IDC FutureScape Worldwide Oil and Gas 2018 predictions published in December 2017, “75% of all oil and gas companies will at least have digital transformation initiatives in full operation deploying cloud, big data and analytics, process automation, or Internet of Things (IoT) for the organisation to advance their IT environment by the end of 2018.”
Clearly, technology is fundamentally altering the sector. The market must understand that data – both their own and that of third parties – is now a commercial driver and a commodity for the sector in its own right. Access to real-time data and innovative technologies can help companies be more successful in exploration, production and monitoring. For example, the opportunity to remotely monitor oil fields could help avoid costly downtime and the potential for IoT technologies on service vessels could open the door for constant, iterative operational improvements.
Operators’ expectations of their service partners’ level of technology adoption is higher than ever. With more than 300 offices in 50 countries, GAC collates an immense amount of data every day. The group uses technology and tailor-made systems to better manage that data and streamline day-to-day operations to optimize efficiency while ensuring cost-savings for customers. GAC is also exploring how to roll out IoT systems for its marine fleet which supports the offshore industry, enabling the group to commodities data even further.
Serving the future of oil and gas
Service providers must change to stay in step with the changing industry they serve. Digitization and outsourcing present key challenges to the accepted operational norms of oil and gas. And with ‘cost’ still the watchword for the sector, they are expected to do more, for less.
But another path also exists for service providers. To keep their profit margins healthy, oil and gas companies need partners they can trust to provide real added value – whether it is in the form of local market knowledge or access to key data analytics to help streamline operations.
Service providers who can rapidly and proactively adapt to the changing market landscape will remain relevant and thrive in an industry that is on the cusp of even more radical commercial transformation – strengthened by a forward-thinking approach to the forces driving that change.
The Author:
William Hill is Executive Vice President - Oil & Gas, GAC Group
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