Earlier in the year, the oil and gas industry went into shock. The pandemic led to a massive contraction in demand for the industry’s products, thanks to industrial and consumer squeeze. In short, businesses weren’t operating, and customers weren’t buying.
Things got so bad at one point that the price of crude futures went negative. Owners were paying refineries and storage facilities to take excess production off their hands. It was a crazy situation – and something that had never happened to the market as a whole before.
The oil and gas industry is having to deal with more secular long-term issues as well. The current crisis will eventually pass. But whether the industry has a future in its current state depends on a variety of factors and how they ultimately play out.
Companies such as T Bailey Inc are currently supplying the oil and gas industry. But like so many other ancillary services to the industry, they’re diversifying their portfolio, striking out into other areas such as paper and pulp or marine.
For many, the writing is on the wall. So what’s going to happen?
Oil Demand Will Peak In 2022
According to Our Energy Policy, the oil demand will peak around 2022 as we reach peak fossil fuel transportation. Countries like India and China are expanding their demand for ICE vehicles, which is likely to reach a head in a couple of years.
From that point onwards, however, a combination of demand and supply factors are going to limit production and lead to the deployment of alternative technologies.
On the demand side, we will see the number of new ICE vehicles hitting the road coming down substantially, replaced by hybrids and full battery-electrics.
On the supply side, easy-to-access shale and ground oil wells are going to dry up, making it more costly to remove oil from the ground. Eventually, this will hit a critical point where the current low price of oil will have to rise. And when that happens, consumers will switch away from gas and find alternative, cheaper fuel sources for their vehicles.
OPEC’s Role Is going To Change
The role of OPEC is going to change as well. The organization is going to have to accept that it no longer has a monopoly on the transport market. Other producers, like Panasonic and Tesla, are now direct competition, thanks to technological innovation.
Gas Will Continue To Expand
At the same time, the non-transport use of gas is going to continue to expand. Renewables are not yet able to provide a ready source of energy for grid load, and many governments see gas as a greener alternative to coal. Already, most western countries derive the majority of their power from gas outside the US.
Financing New Projects Will Become More Difficult
Finally, the oil and gas industry is going to find financing new projects more challenging. Many lenders will be skeptical of the long-term profitability of drilling for new oil fields if prices rise and demand for products falls.
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