The Future of Oil and Gas: An Opportunity in the Midst of a Crisis
As we continue to face the greatest global crisis of our lifetime, our industry and others alike, face a growing set of challenges, some which could be planned for, others less so. Businesses worldwide are gearing up to make tough decisions in the face of the Coronavirus pandemic under great uncertainty, with great stakes hanging on the outcome.
Amid this pandemic, we must adapt quickly and make sense of the rapid geopolitical, social and economic shift unfolding globally. One such change which without a doubt, will shift the industry, is the histrionic drop in oil prices, the lowest in history.
With Brent Crude at an all-time low, driven in part by the dramatic fall in consumption, and also as a result of an economic war triggered to keep prices for oil at moderate levels, oil majors and supply chain companies are presented with a unique set of challenges as OPEC governments and oil producing countries assert dominance over the oil industry. For example, since the start of the pandemic, Oil companies had to cut activities significantly – leaving a huge negative impact on service providers and supply chain companies. An oversupply of vessels and a dip in demand is catastrophic to many OSV players, some of whom were playing catch up even before the crisis.
Volatile oil prices have also meant a drop in demand from an investor perspective. Financial instruments have been unable to cope with the negative oil prices, which meant that investors are now turning to other opportunities.
This cycle adds pressure to oil companies as they scramble to cope with these new realities, which will shift the industry for decades to come.
Essentially, this forces oil majors and supply chain businesses to change the way they operate. Those who succeed will be the ones with the greatest agility in changing business models and strategies. It will be centered in the ability to take cost of the business and offering more value with less resources. During the last crisis of 2014-15, oil majors were successful in reducing cost when it came to their supply chains and service providers. We are likely to witness a similar pattern unfold this time around. This is why the supply chain must be extremely innovative in what we do.
In any given industry, a dominant business model tends to emerge and succeed over time. In a volatile industry such as ours, that is not enough. It must reflect innovation, incomparability and efficiency to capture more entities of the supply chain at reduced capital expenditure.
A successful business model, one which new entrants will use and competitors will adopt, is the one to transform the industry.
From Innovation to Transformation
A central part our readiness to rethink our business model is in digital transformation, which was critical to our industry even before the Coronavirus pandemic. Now, and more than ever, it is even more essential to use technology to operate effectively and to drive efficiency in operations as well as ensuring a common set of data standards provide further value to customers.
Fundamentally, not only must we strengthen our capacity to cope with an extended economic downturn, but we must also create the conditions to deal with enduring global issues on an unprecedented scale, such as the one we face now. These conditions mean we control our narrative. We must ensure that: our business model links our customers’ needs with emerging technologies and that we emphasise the importance of intelligent conversations around the right energy. There is no growth without energy, but we need to have the right energy mix. Moreover, there is a misunderstanding that all hydrocarbons are horrific for the world. That is not the case, because the hydrocarbon industry has changed as the way it is finding, extracting, and producing oil.
At P&O Maritime Logistics, our primary business serves production, which is to a large extent, more stable than exploration and development, this, however, does not mean we are immune to the adverse effects of COVID-19 and a slumping industry.
Focusing on innovation, proactivity and control are critical pillars in weathering the current storm. However, change is inevitable – change in organisational structure and strategy. Controlling our future means controlling our current position and mitigating risk. This will allow us to see tremendous opportunities in the future – if we are brave enough now to do what it takes to be part of that future.
A key component in surviving this crisis is changing our business model. A truly transformative strategy will allow us to deliver on a technology’s potential – and succeeding in radically altering our industry. POML has been a driver of change in its industry and we inherently believed that the last 4 – 5 years in the OSV industry have brought on structural changes to the market, which in return required the industry to rethink and reinvent the business model. This could not be more true or applicable today as we can first-hand see the outcomes of unchanged mindsets.
Since 2012, we have increasingly moved further away from our older strategy as a vessel operator, and we accelerated those change strategies at the outset of the current downturn in anticipation of a glimmer future. Our transformation was tough, and it will now become tougher as we cultivate adaptability and put in place new norms for our businesses. This is a true test of our preparedness to survive and highlights the strength of character of our employees.