The impact of the COVID-19 pandemic has been felt across the energy world with a supply and demand imbalance and considerable supply chain restrictions However, there is renewed optimism as the global economy and oil markets are now showing signs of recovering due to the strategic and essential nature of the sector for the economy of most countries. According to the International Energy Agency (IEA), the inventory surplus built up last year is being worked off and global oil stocks are expected will return to pre-pandemic levels in 2021.
Despite the uncertainties for the long-term outlook for the oil and gas sector, there is a collective acceptance that governments and energy companies must take this opportunity to prepare for the prospects of the new world that lies ahead once the pandemic has passed and adopt strategies to pivot to the new energy future.
Within the oil and gas value chain, the petrochemicals segment is anticipated to bounce back faster than other oil and gas sectors, with the potential to continue to be a bright spot in the portfolio of leading energy companies. With the IEA predicting that by 2026, global oil consumption will reach 104.1 mb/d, it highlights that ethane, LPG and naphtha together account for 70% of the projected increase in oil product demand by 2026.
According to McKinsey & Co., petrochemical management teams should update their strategic agendas to reflect lessons learned from the first half of 2020, including using scenarios to manage the recovery, preparing for increasingly regionalised supply chains, scaling digital and analytics in commercial and operations, and continuing the transition to a circular economy.
As the diversification in supply chains will be key in the post-COVID-19 scenario across the globe, companies are also expected to increasingly restructure their supply-production strategies in order to survive the new normal. In the short term, companies will pursue supply chain adjustments, along with leveraging remote working wherever feasible. In contrast, in the medium to long term, energy firms are expected to progressively adapt to the evolving new normal while safeguarding their financial sustainability.
Most analysts predict the energy transition will be accelerated by several years as a result of the experience of the COVID-19 pandemic, with trillions of dollars expected to flow through economic relief packages into the deployment of low- and zero-carbon infrastructure, as well as research and development into technologies that enable it.
According to S&P Global Platts Future Energy Outlooks, the pandemic’s effects will cumulatively lower energy sector CO2 combustion emissions by 27.5 gigatons over 2020-2050 -equivalent to almost one full year of emissions. Hydrogen, carbon, capture utilisation and storage, and biofuels will all likely play roles in transforming and decarbonising the interconnected global energy system.
In the Middle East, while there remains uncertainty for the upcoming year, 2021 offers some reason for hope and optimism for the oil and gas industry. PWC highlights new projects, such as the expected restart of construction on Qatar’s LNG megatrain, the ramp-up of natural gas production in Oman’s Khazzan Field, and the commercial launch of Oman’s much anticipated Liwa Plastics Industrial Complex, as breathing new life into the construction and midstream/downstream oil and gas activities in the region.
And although Middle Eastern countries will continue to be the world’s primary producers of oil and natural gas for the foreseeable future, with Abu Dhabi announcing a plan for state producer ADNOC to spend Dirhams 448 billion ($122 billion) over the next five years, for example, 2021 should see an acceleration in sustainability and decarbonisation efforts in the region.
According to the World Energy Council, the Middle East region is working hard to ensure that oil and gas remain relevant during this period of energy transition and a drive to decarbonise the global economy. National oil companies and their international partners among the oil majors are developing new technologies to reduce the carbon footprint of oil and gas production. As we emerge from the crisis, the countries of the region are aware of the need to improve their credentials concerning environmental sustainability and also of the vast potential for developing a hydrogen economy, which, if combined with carbon capture and storage, will provide solutions that can be applied to a number of sectors.