Price fluctuations and demand volatility have always been a major concern for the US oil and gas industry but has rarely been more extreme than it is today. As oil and gas companies navigate the crisis, they find themselves in uncharted territories fraught with unique challenges and are forced to face the brunt of the crisis while trying to ensure business continuity.
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Short-term Disruptions: Decline in demand and oil prices
The sudden surge in COVID-19 has plunged many of the world’s leading oil refining and production centers into limbo, with plant closures and uncertainty in China leading the way. Research figures have shown a considerable decline in crude oil refining and processing this year compared to 2019 and an overall 6.5% decline in production. The anticipated decline in production in the near future is also poised to result in a decline in oil prices.
Long-term Implications of COVID-19: Supply chain overhaul & business model revamp
In the long-term, the US oil and gas industry should consider examining its supply chain strategy and operating model to address topographical concentration risks and lack of resiliency. Many oil and gas companies have geographically concentrated oil and gas extraction and refining units to realize the benefits of low-cost labor, promising tax structures, and synergies with both suppliers and customers. Considering all these factors, its now time for oil and gas companies to devise action plans and take corrective measures with a strong focus on overhauling business models and supply chain strategies.
Responding to the Impact of COVID-19 on Oil and Gas Companies: Steps to Consider
The US oil and gas industry has been greatly impacted by the effect of COVID-19. The COVID-19 outbreak has resulted in a plunge in oil and gas prices, diminished demand for oil, and rapid production declines. As we move forward, US oil and gas companies are poised to face three headwinds- Coping with declining prices, a low demand scenario, and the need to drive margins while managing debt obligations.
How the US Oil and Gas Companies Must Respond to the COVID-19 Crisis: A Four-Step Action Plan
- Develop business continuity plans
- Automate processes and minimize manual tasks
- Overhaul supply chain processes and identify alternative suppliers
- Focus on mergers and acquisitions
Also, since the COVID-19 crisis has resulted in several unique disruptions across industries, it is challenging for businesses to navigate the crisis. To help businesses, we’ve developed a holistic business support package for businesses that cover various aspects of a business, including supply chain management, financial reporting, and crisis management.
Moving Forward: What’s in store for oil and gas companies?
While the extent of disruptions to the global oil and gas supply chains hint at a paradigm shift, it also presents bigger opportunities for those who are well-prepared to thrive in the new reality. To tackle the short-term disruptions, oil and gas companies should focus on implementing contingency plans. And to tackle the long-term implications of the COVID-19 crisis, it’s essential to focus on modifying supply chain strategies and operating models to mitigate single points of failure.
Considering the current scenario and its impact on the US oil and gas industry, COVID-19 serves as a reminder that business operations and global supply chains are fragile and disruptive events can come from unexpected sources. The crisis also presents an opportunity for oil and gas companies to rethink processes, opening new doors to collaborate and establish stronger frameworks that can help build a more resilient supply chain.