Over a year ago, we made an oil and gas industry outlook where we emphasized the importance of agility and tech adoption while adjusting to dynamic circumstances. Since then, these priorities haven’t changed much but have grown in relevance. While the sector is accustomed to economic highs and lows, 2022 has brought oil and gas industry risks and disruptions that hit the world like a ton of bricks.
From a security perspective, technology plays an ever-important role in navigating the uncertainty that looms over market volatility. Our experts highlighted the oil and gas industry trends 2022 to help companies reinforce their long-term economic resilience and ability to respond to global events effectively.
The major oil and gas industry risks and disruptions
1. Geopolitical tensions and Russian oil sanctions
Europe has imposed an embargo on seaborne crude oil and petroleum imports from Russia following the country’s invasion of Ukraine. It reinforces the existing US, UK, and Canada energy restrictions, thus deepening Russian isolation. Germany and Poland have also declared they will slowly reduce oil imports by land. This would speed up the Russian redirection of trade flows to Asian markets, particularly India and China, which was already underway.
Due to the oil and gas crisis 2022, production will undergo changes worldwide. Russian volumes could decline by 18 percent by 2023 because of the stricter ban on Russian oil. The uncertainty will manipulate the industry over the coming months, if not years. Since the factors driving energy supply – an expansion of US LNG export and drilling, OPEC+ outputs, and the severity of the Russian oil ban – could change, the outcomes too could vary.
2. Oil supply and demand shifts
The Ukraine war has put supply constraints on top of oil and gas industry risks.
Global oil demand slowed down this year to 99.2 mb/d but will see a gain of 2.1 mb/d next year, outstripping pre-pandemic amounts. Meanwhile, the oil supply jumped to 99.5 mb/d due to bigger output from North America. As the Russian oil ban compels the country to close more wells, OPEC+ and the US steadily raise production volumes to prevent a supply shortfall.
Reduced Russian supplies will push LNG and coal prices even higher, deepening inflation as well as the oil and gas crisis 2022. Meanwhile, the demand for LNG in Europe and Asia will rise as those regions look to secure supplies.
3. Inflation and global fears of a recession
The Russia-Ukraine conflict sent oil prices to nearly $140 a barrel, and a Brent crude benchmark jumped to $113 in May, worsening the inflationary conditions. Banks globally are now trying to pave their way into 2023 since central banks increase interest and recessionary risks rise.
Moreover, oil prices soared after EU members introduced the Russian oil ban. We think inflationary pressures will persist till the end of this year. In the current situation, oil and gas producers are at an advantage because net income will double in 2022 to $4 trillion. Yet, the oil and gas industry risks and uncertainty make it difficult for organizations and investors to make strategic and capital decisions.
4. Impact on the pace of net-zero development
There was a lack of progress toward decarbonization even before the Russia-Ukraine war occurred. Currently, the challenging economic environment, supply, and infrastructure constraints threaten its full-scale roll-out on the one hand. But on the other hand, record oil prices and a ban on Russian oil can impel a faster transition to green technology solutions. The latter scenario is more likely as renewables will provide 22 percent of generated electricity in the US this year and 24 percent in 2023, up from 20 percent last year.
Intensification has given rise to oil and gas trends
All these events and changes inevitably had a severe impact on the global market. So, we share our perspectives on the oil and gas industry trends 2022 that will affect businesses the most.
ESG is front and center
Although higher commodity prices have softened investors’ requirements for sustainable energy now, the net-zero innovation perfectly aligns with the energy security perspective in the long term.
Moreover, the US, along with 63 countries that are working on achieving net-zero goals, have introduced heavy fines for non-compliance. Just in March this year, the directors of Shell were sued for not preparing the company for net zero. We’re certain ESG and corporate sustainability is one of the main oil and gas industry trends 2022 that will maintain velocity in the next decade.
So, ensure you develop net-zero plans and take actual steps to low-carbon adaptation, including emissions reduction by 2030. Digitalizing operations is an effective oil and gas risk management strategy that will support your sustainability commitments.
Accelerating renewables adoption and energy transition
We expect influence over the pace of the transition to intensify and dominate in 2022, fueled by increased energy and oil prices. Environmentalists are also forcing lawmakers to speed up the shift to renewable energy instead of expanding oil drilling. Our experts see three reasons the war may cause the energy transition to advance:
- Oil companies shave more money to invest in the energy shift
- Many countries now have an impetus to reduce Russian oil and gas dependency
- The price of alternative energy is relatively inexpensive against the escalated oil and gas prices
So, as one of the oil and gas industry trends 2022, this would stretch through the whole value chain. Producers will seek to invest in renewables, and at the same time, oilfield service companies will have to diversify their offerings to cater to the shifting landscape.
New skills, especially in the digital and data fields, are in high demand
The energy transition requires greater digitalization, calling for new skills. This puts oil and gas in competition with the tech sector regarding recruitment. Most tech specialists are from younger generations who are concerned about environmental issues, and 62 percent of them consider oil and gas careers unappealing. Industry leaders may find it difficult to recruit and retain the talent they need. So, it’s no surprise more organizations are turning to software development outsourcing services to fill their IT needs quickly and effectively.
Furthermore, we can see the labor shortage in the sector is increasingly growing to the point of crisis. So, we recommend you review your recruitment and engagement strategies and check out tips to enhance employee retention and secure the talent pipeline.
Modern technology investment to become more sustainable and resilient to disruptions
While organizations can’t control world events, modern technology helps to mitigate certain oil and gas industry risks and poor weather conditions. Emerging digital O&G tools enable new working approaches that boost dependability and production while reducing emissions.
Modernization is crucial to oil and gas risk management and ESG strategies in such a dynamic environment. Automation of operations and visualization of data insights bring tangible advantages in seamlessly managing issues and helping companies do more with efficiency.
In addition, automation technologies help eliminate the need for continual hiring and layoffs related to a cycle of boom-and-bust. Tech-driven organizations on their way to energy transition are also more likely to attract younger generation talent.
Oil and gas organizations should prepare to stay afloat
The oil and gas industry’s future outlook seems promising. By 2040, world natural gas demand will rise by 22 percent and oil by 16 percent to serve the global energy needs. To achieve these outcomes, you should innovate and take steps now to succeed in the future.
It’s an ambitious undertaking requiring the necessary knowledge and skills to lead the transition and keep up with oil and gas industry trends 2022. Given labor shortage issues and the pressure to decarbonize, automating processes and partnering with trusted organizations are keys to smooth business operations amid crises.