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Oil and Gas in 2019 – A time of Transition

Credit: GAC
Credit: GAC

By William Hill 2019-01-12 19:09:38

During 2018, volatility marked the global oil and gas sector. Dramatic swings in oil price - from 2015-level highs to vast one-day drops, combined with geopolitical maneuvers, changing global supply and demand trends and mountain budget pressures feed instability in the sector. 

And yet, market conditions served as a catalyst for the industry’s continued evolution and transformation, and there is now a sense of cautious optimism moving into 2019. Operators are working to adapt to major foundational shifts: the decline of hydrocarbons and the rise of renewables, the advance of digitalisation and what this means for workers and processes and new technologies to streamline operations and boost efficiency. 

Offshore operators and service providers must be aware of the key trends and opportunities to continue to successfully navigate the challenges and ensure profitability:

1. Outsourcing

Current market conditions have created an environment more keenly focused on price than ever before. Due to tightening margins, oil and gas players are under greater pressure to reduce expenditures. 

The industry is increasingly outsourcing projects and tasks that historically were managed in-house in a bid to reduce headcount and related costs and to refocus on their core competencies. 

So, they need service providers who they can rely on to provide key value-added services in support of their day-to-day operations. Not only must they have the operational maturity and capacity to handle projects, they need in-depth local knowledge of the offshore market as well as their partners’ and clients’ businesses. 

2. An industry in transition / Short-term contracts

The recent tough times for the oil and gas industry meant many big offshore infrastructure projects were not signed-off, there was a fall in maintenance calls and more rigs and other equipment was laid-up, either in warm lay-ups (better suitable for the short-term but with continued staff and maintenance costs) or cold lay-ups (more suitable for the long-term, but with higher reactivation outlay). 

The choice of lay-up location also influences how much work is needed to bring a vessel back into service. Service providers must be ready, willing and able to adapt to unpredictable and turbulent conditions whether it might be for crewing, resupply, repair or any other job for which they are called upon.

In the current market, many offshore operators are unwilling to plan for the long-term, so a new trend is emerging for short-term contracts over three to six months to mitigate the perceived risks. 

3. Demonstrating value-add 

More than 350,000 jobs have been lost worldwide in the sector. Operators’ resources have shrunk in parallel, with a direct impact on the entire supply chain, with operators demand greater service provision for less outlay. 

That’s why it is more important than ever before to demonstrate added value. Service partners must expect a more complex and demanding tendering process to show off what extra value they offer, as well cost efficiency, coverage, experience and added solutions. 

4. Technology

Increasingly, digitalization is a driver for business change in oil and gas. Embracing the digital revolution can be the factor that makes the difference between thriving or floundering for companies serving the sector, as offshore operators seek ways to transform their operating models to achieve greater efficiency and faster turnaround. 

The benefits are clear - increased productivity, safer operations, improvements in collaborations and maintenance, and cost savings - and they’re now being increasingly recognized. Data has become a commercial driver and a commodity for the sector in its own right. For example, upstream companies are leveraging data insights to discover new oil fields or improve and optimize their processes. 

As a result, operators expect higher levels of technology adoption than ever before from their service partners. And with the focus on transparency and visibility, providers must be able to adapt to the demands of the industry in the digital space to match or surpass in-house capabilities. 

Cautious optimism for 2019

As we head into 2019, there is a growing sense of optimism in the sector, with headlines talking about slow, steady growth and stability in the market. That cautiously upbeat mood was further reflected in a recently published KPMG report which noted that 85 percent of oil and gas CEOs had confidence in the industry’s growth. 

Moody’s 2019 outlook for the sector sounds a similarly optimistic note, reporting that upstream operators are starting to increase production, in turn helping midstream businesses and service providers. Overall, Moody predicts relative stability for the integrated oil and business over the next 12-18 months. 

According to Rystad Energy, the outlook for offshore oilfield service contractors is strong. The consultancy notes that more than 100 new offshore projects are aiming for 2019 sanctions, and an expected $210 billion will be spent on offshore oilfield services globally in the coming year. 

Real differentiation will be marked by those who are able to adapt, whether on the operational or supply side. As the oil and gas industry seek different approaches to recovering their bottom line, service providers who can remain flexible and work with pace will be the ones that stand out from the competition and thrive in the years to come. 

William Hill is Executive Vice President – Oil & Gas, GAC Group.

The opinions expressed herein are the author's and not necessarily those of The Maritime Executive.