A new report has urged oil and gas companies to reconsider their long-term strategies if they want to adapt to the industry’s transition to a low carbon system.
The PWC report, New Energy Futures, perspectives on the transformation of the oil and gas sector, has found the sector’s long-term outlook and market dynamics have changed and the use of fossil fuels is declining.
The report outlines a framework for companies to consider potential industry futures and uses four different perspectives to highlight some of the fundamental trends shaping the oil and gas industry.
These perspectives describe the things that will have the greatest impact on the sector in the long term, and how they will impact supply, demand and market dynamics.
The four perspectives explored include:
- The oil and gas sector evolves along current lines. Ongoing price volatility presents investment challenges.
The key driver in this perspective is the highs and lows of the investment cycle and the effect on supply.
- Energy consumers, retail and commercial, drive the transition to low carbon world and more efficient energy system.
This perspective explores how retails and commercial consumers in key markets actively seek to reduce their environmental impact and turn away from the use of fossil fuels, especially oil, which reduces demand.
- Government actions and/or geopolitical events trigger supply constraints.
The Government drives the transition to a ‘greener’ environment through regulation, incentives and direct investments that balance affordability and low carbon objectives.
- Governments stimulate a broad and accelerated ‘green’ demand environment.
In this perceptive, government attitudes and circumstances are dictating the supply environment.
While it’s hard for companies to look beyond the near term due to current industry changes, the report stresses that it’s actually an important time to think about long-term strategies.
The report said that the ‘low carbon agenda’ is unlikely to impact oil and gas companies in the short term, but the momentum to replace fossil fuels with cleaner energy is gathering pace.
Viewing the sector through these four perspectives can help companies evaluate their current strategies and plans.
The oil and gas sector is currently going through a challenging period, with declining oil prices leading to a focus on cost reduction, and a demand for technology innovation.
The report recommends oil and gas companies adopt include a focus on agility and resilience by recognizing the signals of change and responding promptly while also having strategies in place that lesson future shocks to the business environment.
The report also suggests a focus on growing new innovative technologies and collaborating across the sector.
While oil and gas will represent a reducing proportion of the overall energy mix, the timing of the peak and pace of the decline is still uncertain. The PWC report said that the industry has demonstrated an ability to adapt to a changing world and that it will play a critical role in the transition to different energy needs.