5 Common Problems of Oil and Gas Companies in 2022
The oil and gas industry also saw changes and challenges that were not direct results of the pandemic but were magnified by it. Not much has changed 2 years after the event. Some of the challenges still experienced by the OAG industry are:
- A paradigm shift from petroleum production to sustainability-based strategies in the electricity market. By the end of 2029, over 29% of global electricity was produced from renewable resources. That figure has only continued to rise.
- The pandemic meant there was less travel. This resulted in a compression of other sectors of the market e.g fewer cars purchased, less aluminium manufactured etc.
- Though 2020 was termed the “great compression” of the gas production market, these market changes were the result of trends that had already started. Now, in 2022, these changes have only continued to grow.
The industry is facing the lasting effects of the pandemic and its massive disruption, as well as the acceleration of what many already saw coming. Keep reading to learn what key problems oil and gas companies face in 2022.
KEY PROBLEMS EXPERIENCED BY THE OIL AND GAS INDUSTRY IN 2022
1. Market Shifts
The global oil and gas industry is yet to fully recover to the pre-pandemic level despite an increase of over 50% in oil prices at the end of 2021.
The snapback will continue, but the distribution of revenue has changed indefinitely. Many of the biggest firms are looking to a more sustainable future, perhaps away from petroleum production entirely.BP, for example, is reducing its production of oil and gas by 40% before 2030 and later will eliminate it entirely. Most of these changes have been a “long time coming.” The commercial price of natural gas, most notably, fell from $7.91 per thousand cubic feet in 2015 to $7.48 in 2020. The price of gas-based electric power fell from $3.38 to $2.48 at the same time. These shifts have shaped the market landscape like so many earthquakes once shaped the continents. Oil and gas companies today will be forced to remap the terrain before they know how to move forward.
2. Fewer Infrastructure Investments
The oil and gas industry is capital intensive for two major reasons. The first is its immense tech drive and the second is the need for massive infrastructure investments. Infrastructure in oil and gas takes years to deliver an ROI. The average investment is paid back within five years. Some systems such as natural gas pipelines can take between five and ten years to be paid back. With the new wave of ESG (Environmental Social Governance), governments around the globe have given companies another reason to pause before making major infrastructure investments this year. These efforts aim to move the energy market to renewable energy sources.
In as little as five years, natural gas could see little to no demand at all. Along with governmental pressures, large-scale events have shaped the 2021 panoramic, too. In mid-February, storm Uri hit Texas and other states in the Central South of the U.S. The electricity infrastructure failed residents in a big way. The storm also meant there was increased demand for natural gas as a result (which was processed into electricity to support the community demand).
Before the market sees that demand as a rally to build more infrastructure, the likelihood of repeat events must be considered. Otherwise, companies will end up investing in infrastructure that would then stagnate entirely before a return on investment is achieved.
3. Flaring Will End
Along with BP’s newsworthy departure from oil and gas production, the company has also said that it will end natural gas flaring entirely by 2025 through its own gas flaring alternatives. When it comes to companies’ interest in ending flaring, the motives are more complex than simply saving the environment. The reality for smaller companies is the need for a reconfiguration of their current business models.
A large portion of the 9000 oil and gas companies in the US fall into this category and cannot survive another downturn like the one experienced in 2020. Subsequently, smaller gas fields look to the natural gas that was otherwise flared away. This is a commodity that now must be put to use through fracking alternatives if the companies are to survive. On the other hand, large-scale producers are primarily interested in eliminating gas flaring to get ahead of the governmental requirements. With the US re-entering the Paris Agreement, 2022 will see even more corporations looking to reduce or cut flaring entirely.
4. More Technology in the Industry
The oil and gas industry has always been tech-focused due to its dependency on the utilization of technology to produce energy and to make processes more efficient.
An example is the horizontal drilling introduced just a few years ago, which increased natural gas and oil output in an enormous way. Technology is the distinguishing tool and is often responsible for conquering the fierce competition in the oil and gas industry. The major goal in 2022 is to optimize production through technology rather than investing in infrastructure that may stagnate before birthing profitable returns. Simply put, technology can deliver an ROI unlike any other into the industry, provided companies invest appropriately.
5. Finding New Revenue Streams
All 9,000+ oil companies in the country are looking for new revenue streams so as to replace falling prices and demand. The other changes to the industry discussed above will continue to drive this trend further and faster. Oil and gas companies can future-proof their businesses through a reinvention of what they offer.
Ultimately, Energy rather than gas, is what most companies will produce and even in production, sustainable energy sources will soon overtake the market. Meanwhile, there are new and more instantaneous opportunities to diversify revenue streams such as the mobile mining cryptocurrency.
The installation of EZ Smart Box mobile data centers has demonstrated numerous examples of oil producers monetizing the natural gas they otherwise flared away. Gas crypto mining centers are installed in days, then they convert natural gas on-site into electricity used to mine cryptocurrency. The natural gas that would have earned companies $2 per MCF instead earns them $30. This symbiosis has opened up opportunities that will carry many oil companies fast into the future.
Once a formidable giant, the oil and gas industry had a bit of an identity crisis in 2020
The transition from oil production to electricity has begun, and daily, more reliable revenue streams are coursing into the market.
The enthusiastic adoption of change will position oil and gas producers a step ahead of the problems the industry faced in 2021. In 2022, the industry is bound to experience a mix of unprecedented opportunities as well as challenges.
It’s up to each company to decide whether it will sink or swim against the coming tide.