Oil sector to endure another year in the doldrums x

Jan 21, 2021 News

– Guyana’s Fmr. Petroleum Advisor

By Kiana Wilburg

Kaieteur News – In spite of the unprecedented economic peril that was brought upon the oil industry with the COVID-19 pandemic, there remain several optimists who firmly believe that 2021 will be the year of recovery. But other analysts such as those attached to international oil and gas consultancy group, Wood Mackenzie, are cautioning observers to temper their hopes as recent assessments show that the industry is poised to spend another year in the doldrums.
Expounding in this regard was Fraser McKay, a Senior Analyst at Wood Mackenzie. In his contribution to the Wood Mackenzie report, McKay said that the upstream oil and gas sector will be depressed while adding that he expects investment levels to remain flat at about US$300 billion in 2021. He said, “Falling prices would mean rapid cuts, whereas at higher prices, contingency and resilience will outweigh enthusiasm to take advantage of a nadir in service sector costs.”
Strategically, the Wood Mackenzie official said that companies will focus heavily on stability and financial resilience while adding that investment decisions will reflect this priority. Kaieteur News understands that Wood Mackenzie expects 20 or so big project sanctions in 2021, up from just over 10 in 2020, but just half the prevailing pre-pandemic trend.
Further to this, the international consultancy group said that the merits of these will increasingly be judged on their environmental, social, and corporate governance (ESG) credentials. “The class of 2021 will not all be low-carbon, low-cost trailblazers. But the direction of travel is one-way in terms of industry stakeholder aspirations,” said McKay. The analyst also said that Wood Mackenzie expects continued downsizing in the service sector as he added that this will lay the foundation for improved margins, even if activity does not increase as forecast between 2022 and 2025.
In terms of the focus for the industry for 2021, Wood Mackenzie’s Senior Vice President of Corporate Research, Tom Ellacott, was keen to note that new businesses and new business models are emerging from the wreckage of 2020. He said this has demonstrated clearly that companies will focus their investment on building a foundation which will be sustainable across a range of scenarios. Ellacott asserted that companies will continue their relentless focus on boosting margins in upstream and downstream. The Wood Mackenzie SVP made it clear however that diversification into new and cleaner energy sources will accelerate as more players commit to decarbonisation.
“The Euro Majors will put more meat on the bone in 2021,” said Ellacott. He added that geo-political factors such as the change in the U.S. administration and shifting global sentiment will pressure international oil companies and national oil companies (NOCs) to lay out road maps to net-zero emissions.
In conclusion, Ellacott said governments will have to explore fiscal policies that support the global green initiative, while also balancing the need to restore budget deficits.