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March 24, 2022updated 31 Mar 2022 11:10am

Covid-19 in oil and gas: two years on

It’s been two years since the pandemic began, with nations around the world coming to grips with its ripple effects and damages. But how is oil and gas faring?

By Scarlett Evans

Last year, we looked at the state of the oil and gas industry as operations began to recover from the pandemic and industries slowly returned to business-as-usual.  

While some sectors seemed to get back on track relatively smoothly one year on from the pandemic’s beginning, GlobalData insights showed offshore to be a relative laggard in returning to pre-pandemic production and investment levels, with the oil and gas sector ranking last of the 18 sectors considered in terms of latest value for Covid-19 activity recovery. 

Has the industry bounced back now that we’re two years on from the pandemic? We take a look. 

A sector slow to change 

As nations change tack to live with rather than fight against the virus, certain sectors are returning to pre-pandemic activity levels as business resumes. This trend, however, has not been reflected in the offshore industry. 

According to GlobalData figures from the beginning of last year, the oil and gas sector was the worst performer in the global economy, with sectoral activity still below pre-pandemic levels in the first quarter of 2021. This definition of sectoral activity was assessed using a number of different datasets from the sectors considered, including job advertisements, deals, and stock prices.  

As shown below, at the start of the pandemic in March 2020, stocks in oil and gas took a nosedive that the sector has struggled to recover from. Sectors were assessed on the average of companies’ stock prices in each sector in dollars; offshore stocks hit a low of $69.85 in March 2020, before sporadically rising to a high of $143.31 in May 2021. 

While the other energy sectors of power and mining similarly saw a significant decline as a result of the pandemic, neither reached the lows of offshore. The power sector, which overtook offshore at the end of 2019, has somewhat recovered from its wobble at the height of the pandemic, reaching an average of $162.17 in May 2021. Mining has been the primary winner within energy, with stocks skyrocketing between January 2020 and January 2021, reaching $444.28 as of May 2021.  

Declining interest in the offshore sector is similarly seen in the dwindling number of financial deals in the sector, which continued to dip throughout the pandemic and, as of July 2021, reached below pre-pandemic levels. This placed the offshore sector 11th out of the 18 industries analysed over this period of time.  

Financial strain from the pandemic and hesitation from businesses to completely open their doors again has meant that financial deals and investment have been dampened across sectors. However, oil and gas has been set on a particular path of decline as nations seek to phase it out in the post-pandemic landscape. 

The environmental agenda 

The change in investor interest is partially due to the fact that, as nations rebuild their economies after the shockwaves of the pandemic, traditional energy sources are being sidelined in favour of cleaner alternatives. With sustainable energy use increasing during the global lockdowns, many governments made it a cornerstone of their recovery packages.  

As GlobalData report ‘Covid-19 cross-sector impact’ writes, there has been a shift in focus to sustainable growth, with the World Economic Forum saying that “any pandemic response needs to be seen in the context of a worsening climate crisis”. 

This push to move into renewables is making offshore recovery difficult, with companies looking to restructure with clean energies at the centre of their business models – something that can be seen in hiring trends across the offshore sector. Environmental jobs within offshore have seen a steady rise throughout 2021, reaching a new high of 12% of all positions posted within the sector in December that year.  

Given the increased investor and public pressure to turn away from heavy emitting industries such as oil and gas, it is likely that offshore majors will use their substantial financial power to develop renewables or other clean energy technologies such as carbon capture or green hydrogen. In doing so, they would open up the option to adapt to this changing energy landscape, and avoid being left behind by the global shift away from fossil fuels.  

Growth on the horizon? 

The green agenda, in addition to ongoing market vulnerability, means there are overall weaker forecasts for oil demand. According to S&P Global Platts Analytics ‘Future Energy Outlooks’, the pandemic’s impact on global economies and consumer behaviour has reduced long-term world oil demand by 2.5 million barrels per day. The analytics group has also predicted overall oil consumption will not return to pre-Covid-19 levels until late 2022. 

“Such forecasts have many OPEC+ members worried about a renewed slump in prices that would undo the hard-won gains of the last several months and destabilise their economies just as they are regaining their footing,” the group writes

The squeeze on oil producers has already pushed prices up, even before Russia’s invasion of Ukraine sent the energy markets into further disarray.  

The conflict has disrupted the offshore industry’s recovery process, with the retaliatory sanctions levelled against Russia meaning that supplies of oil and gas from the nation are no longer accepted by many Western nations, and oil and gas majors have retreated from operations in the region

While it may take some time for the sector to stabilise, recovery is still expected to happen in the future, and it is not all bad news for the industry. According to GlobalData’s 'Global Capacity and Capital Expenditure Outlook for Refineries, 2022–2026', global crude distillation unit (CDU) capacity is expected to witness a growth of 11% over the next four years, increasing from 105.6 million barrels per day (mmbd) in 2022 to 117.2mmbd by 2026. 

Asia is set to lead the charge, expected to see the highest CDU capacity among all global regions and reach 42.2mmbd in 2026. Specifically, China, India, and Nigeria are set to be the top three countries globally for CDU capacity additions during the 2022 to 2026 outlook period. China is expected to add 3.4mmbd of CDU capacity by 2026, while India and Nigeria are expected to add 1.6mmbd and 1.5mmbd respectively.  

While the unfolding war in Ukraine will likely alter the parameters and details of its development – placing different nations at the forefront (or back) of production – the sector is expected to regain momentum, even if it is with a more eco-minded slant moving forwards. Despite the obstacles slowing the offshore sector’s recovery from the pandemic, the industry will, to some degree, pick up again, and oil and gas will remain a crucial part of the energy landscape for some time yet.  

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