The economic turmoil, competition, and mind-numbing price oscillations, energy companies will have to come out with a strategic development in transforming their business models.
You can leave the price fluctuations to the analysts. What more important here is that the unstable nature of the energy business is no longer in control of the industry leaders. In fact, both producers and refiners, with puzzled future, should ask simple questions rather than the cost of the oil:
• Is it possible to lock the energy demand?
• Is it possible to flourish in the oversupplied environment?
If the energy companies find adequately, and in a few cases, fearlessly find the answers, then they have the possibility to establish a pathway to success irrespective of the uncertain pricing structures for their products.
The oil patch beneath the ground shifted dramatically. The prediction for the industry is entirely different when compared with that of a couple of years ago, where the ground rules were in control of the cartels. The traditional discipline of controlled price structure is no longer the realm. The imbalanced market replaced it due to the increasing supply and receding demand across the globe. Additionally, economic weakness, fuel economy regulations, availability of alternative energy, and development of efficient engines across the automotive industry contributed to the shrinkage in the requirement of oil. Meanwhile, the presence of new reserves, particularly of shale oil in various regions around the globe is also flooding the market.
The increase in the supply of the oil, gas, and other liquid fuels was twice that of the demand.
The scenario presents a troubled outlook for oil giants across the globe who invested tens of billions of dollars in exploration when the prices were high but could not relish a simultaneous improvement in the production or profits. All they could do was slim down by closing unprofitable units and cutting back on the investments. Nonetheless, these companies still face increased competition from state-owned companies and independents.
Fortunately, the situation is on the brighter side for the gas sector. According to estimation by International Energy Agency, the demand for natural gas will grow by 2.2 percent by the end of 2019. Although the natural gas represents the increased share of global energy requirement, analysts predict that the production will exceed the demand in a shorter period.
It is important for oil and gas producers to evaluate their group field-by-field to ensure that every operation suits the core strength of the company, customer demographics, skill sets, and preferences. The biggest mistake that these companies can make is to focus solely on reducing costs and spending. It is valid only for short term and in narrow market circumstances. Over supply and reduced prices are big challenges, but that does not mean that the future is insignificant. It is important for producers and refiners to brace up and adopt new initiatives and strategies to take advantage of the changing reality in the oil and gas sector across the globe.