Oil and Gas Trends in 2018

The problem which the oil and gas industry is currently experiencing is similar to the issues confronting most industries today—volatility. The year 2018 has been one of the most economically volatile years on record. At present, oil prices are rising, although they are considerably lower than their record highs of 2011. Oil and gas companies must find ways to continue to exploit current price trends while hedging their risks.

SWOT

Strengths

The great strength of the industry is that much of the world remains dependent upon oil. Recent oil prices are expected to remain in place in the short term but over the next ten years they are predicted to rise (Biscardini, et al., 2017). The world continues to industrialize at a rapid pace, likewise driving the level of demand.

Weaknesses

However, most oil companies remain historically very expensive to operate, both in terms of supply chain delivery as well as processing petroleum; cost containment has historically proven difficult (Biscardini, et al., 2017). The industry is a global one, and while this means that on one hand hedging risks may be possible by focusing on high demand in areas of the world when demand is sinking in other areas, this also makes the industry very vulnerable to political instability.

Opportunities

New business models are evolving in the industry. Once, the industry was largely dominated by a handful of large firms. Now, smaller, specialized firms are beginning to eke out a larger market share. Additionally, oil and gas companies have adopted more sustainable approaches to their work. For example, France’s Total has “taken this step by implementing a plan that requires one-fifth of its asset base to be focused on low-carbon technologies and by acquiring a battery manufacturer to spearhead its efforts in electricity storage,” while China’s Dong Energy, “originally an oil and gas producer, is shifting its focus to renewable energy, using its legacy fossil fuel businesses to generate cash flow for the development of offshore wind farms” (Biscardini, et al., 2017, par. 20).

Threats

However, the industry is also being threatened by demands for sustainability outside of the immediate sector. All firms have been faced by demands from the public to engage in more sustainable practices. New organizations are evolving to ensure less reliance upon nonrenewable fossil fuels in the form of electric cars, lawnmowers, solar-heated homes, and wind energy.

Strategic Alternatives

The oil and gas industry could continue on its current path. Or it could look to incorporating more sustainable activities into its profile of activities. At least within the next decade, profits seem fairly secure. Further sources of profitability can be found by reducing costs by better leveraging technology to take over currently human-generated labor, as well as cultivating leader supply chains. But the need to continue with further oil and gas exploration is likely to be met with opposition, even though currently within the United States there are largely favorable conditions supporting the industry. Abroad, the outlook is more uncertain although despite energy innovations, no alternative has emerged to fully replace oil and gas as a source of fuel and energy. Diversification appears to be the most logical answer; continuing to develop oil and gas reserves while simultaneously evolving more ecologically-friendly methods of both extraction and energy to make businesses more palatable to consumers.

References

Biscardini, G., Morrison, R., Branson, D. and Del Maestro, A. (2017). 2017 Oil and gas trends.
Strategy&. Retrieved from: https://www.strategyand.pwc.com/trend/2017-oil-and-gas- trends