Change is coming for the oil & gas industry bringing with it a new set of challenges and opportunities. In the face of these changes, Mark Montanari, VP Chemicals and Oil & Gas, poses a critical question to executives across the North American industry.
We are already seeing growing confidence in the oil and gas industry this year with an uptick in global demand fueled mostly by China and Brazil. However, changes – both in terms of challenges and opportunities – are coming. Factors such as China's gradual shift away from coal and insatiable appetite for liquefied natural gas (LNG) will bring unusual challenges to the marketplace in the year ahead. In response, industry leaders will need to review their strategy to factor in a widely anticipated slowdown in economic growth, a continued focus on renewables, especially in China, sanctions with Iran and Venezuela and an unpredictable trade war. The bottom line is, the entire industry needs to re-evaluate how it explores, produces, moves crude, refines and distributes its products to satisfy increased demand while navigating difficult changes in the industry, regulatory environment and global economy.
The critical question is: Are North American oil and gas producers and refiners ready to meet the challenges ahead?
The biggest challenges for 2019
Oil and gas producers will continue facing major challenges in 2019, including a pronounced erosion in human capital. Producers will need to get creative in their talent acquisition and retention strategies, especially as more workers move past retirement age. Responses to this challenge may include bringing retirees back as consultants while, at the same time, renewing focus on digital transformation, artificial intelligence, IIoT applications and intelligent production.
Other challenges include continued environmental pressures like the desulfurization policies from the IMO affecting refiners. These will require them to take a proactive stance in adapting, completing upgrades, and ensuring safe and efficient distillate production.
Being prepared, despite challenges and obstacles, is key. Stress-testing the supply chain will help ensure that companies are able to withstand these challenges and take advantage of new opportunities.
Trade war impacting oil and gas in unexpected ways
A 25 percent steel tariff, meant to drive jobs back to the US and give a boost to domestic steel producers, has pushed up the cost of specialty tubing, and pipelines. As a result, we're seeing a cost inflation for future oil and gas projects and turnarounds alike. Increased steel costs will affect the overall price of pipelines which will ultimately be reflected in a gradually increased price for products.
Alternatives and renewables
Electric vehicles (EVs) are gaining strength, especially in China, where the government has an aggressive policy towards pollution abatement, de-emphasis on coal and greater sanctions against polluters.
China is a major market influencer
Energy, oil and gas continues fueling the global ecosystem. Several components of the Chinese economy in particular will have a major impact on North American producers in 2019. These include the trade war and tariffs, an increased policy towards renewables and EVs and a growing appetite for LNG as China ramps up to meet its goal of achieving GDP parity with the US and OECD by 2050.
The good news is that paying adequate attention to these factors in 2019-2020, will enable oil and gas producers to flourish. Gaining deeper supply chain insights through data analytics and Total Value Optimization (TVO)™ will give producers the ability to release trapped EBITDA in sub-optimized business processes, improve cash position and enable growth.
If you would like to talk about any of the topics raised in this article, please contact one of our oil & gas executives at: firstname.lastname@example.org for a no-obligation discussion.
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