BAKU, Azerbaijan, May 21
By Leman Zeynalova – Trend:
Under most scenarios, oil and gas will remain a multi-trilliondollar market for decades, Trend reports with reference to McKinsey and Co.
The company said in a report that given its role in supplying affordable energy, it is too important to fail.
“The oil and gas industry is experiencing its third price collapse in 12 years. After the first two shocks, the industry rebounded, and business as usual continued. This time is different. The current context combines a supply shock with an unprecedented demand drop and a global humanitarian crisis. Additionally, the sector’s financial and structural health is worse than in previous crises. The advent of shale, excessive supply, and generous financial markets that overlooked the limited capital discipline have all contributed to poor returns,” said the company.
McKinsey and Co. notes that today, with prices touching 30-year lows, and accelerating societal pressure, executives sense that change is inevitable.
“The COVID-19 crisis accelerates what was already shaping up to be one of the industry’s most transformative moments. While the depth and duration of this crisis are uncertain, our research suggests that without fundamental change, it will be difficult to return to the attractive industry performance that has historically prevailed.
On its current course and speed, the industry could now be entering an era defined by intense competition, technology-led rapid supply response, flat to declining demand, investor scepticism, and increasing public and government pressure regarding impact on climate and the environment. However, under most scenarios, oil and gas will remain a multi-trilliondollar market for decades. Given its role in supplying affordable energy, it is too important to fail. The question of how to create value in the next normal is therefore fundamental,” said the company.
McKinsey and Co. believes that to change the current paradigm, the industry will need to dig deep and tap its proud history of bold structural moves, innovation, and safe and profitable operations in the toughest conditions. “The winners will be those that use this crisis to boldly reposition their portfolios and transform their operating models. Companies that don’t will restructure or inevitably atrophy.”
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