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How do we assess the Oil and Gas sector and Chemical industry prospects in 2020? While the market is not likely to record volatile fluctuations in the price of the past, uncertainties will pose a challenge to performance and investment.
And as disruptive forces drive change, the long-term business environment may require the same vigilance as day-to-day positioning.
According to the analysis and prospective work of the consultant: ” As always there are headwinds and tailwinds, risks and opportunities, uncertainties and foreseeable trends, but in this report we aim to take stock of the main factors to watch for in 2020 across the diverse oil, gas, and chemical industry. Over the past decade, we have seen the heights of bullish optimism and seemingly limitless investment during the years of the $100 per barrel world, from 2011 to mid-2014, and the lows of the price crash and extended oil downturn, from mid-2014 to 2017.
Neither extreme seems to be in an imminent return since the industry has learned valuable lessons from both episodes, but uncertainties are clearly a challenge to performance and investment. “
Oil and Gas Outlook
As we evaluate the most prominent trends and issues for the oil and gas and chemical sectors in this outlook, executives in these businesses seem keenly aware of wider macroeconomic and business environmental risks, which seem to be gaining strength. Among these are:
- Weakening economic growth, not only in the United States but also in Europe and Chinaebilitamiento del crecimiento económico
- Ongoing, perhaps intensifying, trade tensions, which can create uncertainty, dampen growth, and lead to modifications in long-established oil and gas supply chains
- The many political risks, of course, including the US election cycle, the outcome of the Brexit process in Europe, and tensions in the Middle East between multiple states and non-state actors with different objectives.
The issue is not so much the demand, as global fuel consumption has grown at a rapid pace since the 2014 price drop, but trade disputes and the slowdown in economic growth could weigh on the fundamentals of the 2020 oil market. The demand for refined products, and therefore for oil, tends to follow the global economy; If the latter begins to slow down, the former probably will too.
Although there were a restriction of production by OPEC countries, if we also assume that a lower-demand growth outlook is quite possible in 2020, as a result of potentially weakening global economies, then we could conclude that supply security is reasonably robust, even in the face of security risks in some key producing countries.
Fossil fuel demand is widely expected to peak around the midcentury, but there is not a clear consensus about when. Some forecasts project combined oil, gas, and coal consumption to plateau by 2030, whereas others do not see a peak until after 2050. Uncertainty is not new to the industry. Oil and gas companies are used to uncertainty not only in high-level outlooks and scenarios, but also in commodity prices, technologies, and geopolitics. The energy transition, however, poses entirely new challenges for these companies and could prove disruptive to long-standing market structures, value chains, customer preferences, and the economic drivers for the oil and gas business.
The real challenge is that the oil and gas companies of today, many of which aspire to be the broad-based energy companies of tomorrow, will need to figure out how to produce more oil and gas (and increasingly power) year after year while also being carbon-conscious and addressing stakeholders’ sustainability concerns.
The energy transition is a long-term trend, but we have perceived a greater focus on this in 2019, and it is expected to gain momentum in 2020. The decisions taken now can help companies position themselves better in the coming decades, by anticipating Disruptions change instead of reacting too late.
2020: Balancing the short- and long-term needs
How can company executives remain vigilant to the many risks and uncertainties clouding the outlook for 2020 while standing ready to embrace new opportunities for profitable growth in an evolving market landscape, which might look quite different in the next decade and thereafter, as disruptive forces accelerate? We see signs that many of the lessons from oil and gas of the large swings in the price environment and from chemicals of market dislocations have been taken on board, and these industries, as a whole, are better equipped to face the future than they have been at any time in the past decade. While carefully building capabilities for the long-term future around the energy transition and the circular economy (and demonstrating these to the investor community and other stakeholders), financial discipline and prudent investment strategies should help stabilize performance and reassure financial markets in the near term.