Oil and Gas Companies Still Faces Volatility Price in Coming Years
Illustration of Volatility of World Oil Price. Photo: Special

JAKARTA (TheInsiderStories) – In 2019, the ongoing volatility of oil prices tends to make the valuation of oil and gas companies more challenging, especially when the price of the resource base is so unclear. So, this year oil and gas executives must try to set the direction of growth for the companies, said PwC’s 22nd Annual Global CEO Survey trend series report today (02/21).

According to survey, the volatile’ combination and sometimes incomprehensible commodity price fluctuations, the future of fossil fuels ambiguities and increasingly controversial of world trade negotiations are increasing traditional supply and fundamental demand, impacting a number of new challenges without clear answers.

The survey also estimated that the current abundance of supply will only last several years before facing a supply crisis.

This’s based on price fluctuations in the second half of 2018 – most companies receive stable price increases (up to more than US$ 80/bbl) with talk of “lower for” longer crude oil evaporation. Then, the sector was hit by an unexpected collision (with Brent sliding to the level of $ 60s).

Moreover, the consideration of fossil fuels, which even amidst the transition to a low-carbon future will still make up around 75 percent of global primary energy demand by 2040, according to the International Energy Agency report.

The survey highlighted that in 2017, the world’s energy primary demand were: solid biomass (5 percent), coal (27 percent), oil (32 percent), gas (22 percent), nuclear (5 percent) and renewable energy (10 percent) While in 2040, world energy primary demand are: solid biomass (3 percent), coal (22 percent), oil (28 percent), gas (25 percent), nuclear (5 percent) and renewable energy (17 percent).

Therefore, according to the survey, there are four choices for oil and gas companies, firstly, push full speed forward on fossil fuels. This approach is exemplified by many midsize companies, such as Occidental, whose product strategy remains focused on expanding oil assets, especially with increased investment in the US Permian Basin and at the same time experimenting in the non-oil line with small investments in absorption technology carbon.

Then there was EOG Resources, the Houston company, which doubled its commitment to resources by buying sand, water, and its own chemicals for fracking, rather than dividing the risk of the project with an oilfield service company.

In addition, Saudi Aramco, for example, opened R&D center in Detroit, focusing on carbon exhaust pipes and emissions capture technology. Others such as Equinor, Total and Royal Dutch Shell also plan to build carbon storage equipment and facilities to reduce carbon dioxide emissions.

The Abu Dhabi National Oil Company (ADNOC) surprised a number of observers with its recent decision to set ambitious production capacity targets (increasing from 3 million barrels per day to 4 million in 2020 and 5 million by 2030).

Secondly, diversify the portfolio. In this stage, diversification mainly included several major acquisitions by major oil companies that were best known for natural gas projects – for example, the purchase of BG Group by Shell worth $ 53 billion.

This strategy will involve strategic to offer renewable energy, as exemplified by the Total partnership with EREN Renewable Energy. Or companies may choose to focus more on traditional secondary markets, such as petrochemicals, where demand growth will mostly come from the Middle East and China.

The International Energy Agency estimates that more than one third of the increase in oil demand in 2030, and almost half in 2050, will come from petrochemicals.

Thirdly, use all renewable energy. The poster child for this strategy is Danish giant Dong Energy, who has changed his name to Ørsted while completing a makeover that confines upstream oil, gas and coal businesses that support renewable energy sources.

Carbon emissions from Ørsted products have been cut by around 50 percent since 2006, and by 2023, this figure will increase to 96 percent. Likewise, gas giant GDF Suez has recently rediscovered itself as Engie, ‘sustainable energy for all companies’.

The last, companies need to invest in agility through digital innovation. Up to $1 trillion in estimates of savings in capital and operational expenses are up for grabs over the next seven years – especially from the use of new technologies to improve efficiency in project management, operations and supply chains – oil and gas companies are starting from the beginning of their competition with digital innovation will have different advantages.

Looking for the increasingly large impact of energy transitions, it is inevitable that large oil companies will have other non-traditional utilities or businesses such as electric vehicle filling stations too.

With the added benefit of owning a platform, the combination of current retail stations, charging electric vehicles and offshore wind power plants can create a powerful new business model.

Written by Daniel Deha, Email: daniel@theinsiderstories.com