Fall in oil prices and upstream capex cuts are the biggest concerns for oil and gas service providers, says GlobalData poll

GlobalData Energy 14 October 2020 (Last Updated October 14th, 2020 16:04)

Fall in oil prices and upstream capex cuts are the biggest concerns for oil and gas service providers, says GlobalData poll

The Covid-19 outbreak and the subsequent turmoil in oil markets have impacted the entire oil and gas value chain, including associated service industry – EPC, oil field services, O&M, etc. The lockdowns imposed globally to curtail the spread of the virus have seriously dented the oil demand and led to crude oversupply and the consequent price crash. Major companies across the oil and gas value chain were forced to realign their strategy and operations due to low-price scenario and market uncertainty. Along for these companies, low crude prices have become one of the biggest concerns of oil and gas service providers. A GlobalData’s recent poll has confirmed the same, where a third of respondents believed that fall in oil prices as the major concern for the service providers.

Many oil and gas companies have re-aligned their upstream capital expenditure for 2020 as one of the immediate measures to tackle lower demand and depressed oil prices. In the current market scenario, they have focused on the maintenance of only critical operations leading to substantial reduction in their upstream capex. As a result, a third of the respondents opined that reduction of upstream capex by main operators is one of the biggest challenges for the service industry.

Around a fifth of respondents believed order cancellations or postponements a major concern for the oil and gas service providers. The depressed oil markets, and long recovery outlook prompted several companies to rethink their upcoming projects, leading to delays or cancellations. Consequently, operators either cancelled or postponed projects, creating a ripple effect.

The lockdowns imposed by governments in many countries led to supply chain disruptions impairing operations across the oil and gas value chain. Service providers were forced to re-evaluate their supply chains and find ways to mitigate equipment supply risks. This is further substantiated by 13% of respondents that believe supply chain disruptions is also a concern of the service industry.