Oil and Gas

Faced with changing models for business growth, the sector is seeking to build value through other strategies. As pressure builds to improve ESG performance, an increasing number of companies will consider such efforts to help to reduce business risks, improve resilience, enhance corporate reputations, grow revenues and create long-term value.

In recent years, companies have steadily increased their investments in renewable energy and ‘green molecule’ resources like hydrogen fuel produced using renewables rather than natural gas. Those investments are expected to keep growing as more businesses and governments commit to net-zero goals. However, more progress is needed: Oil, coal and natural gas still account for 80% of today’s energy supply.

Moving to new and greener sources of energy will do more than transform the global energy system – it will drive change across supply chains of all kinds. In addition to expanding demand for solar panels, wind turbines, batteries and hydrogen fuel cells, it will create new demands for lower-carbon raw materials, parts, products and means of transport. Businesses that embrace these changes and find new ways to create new value from decarbonising their value chains will gain lasting strategic and competitive advantages.

With investors increasingly directing their money towards renewables and green energy technologies, oil and gas companies are likely to face a capital-constrained future. This will drive more self-funded growth. Without proper planning for this new business environment, there’s also a risk of energy supply shortages. Companies can avert such risk and discover new opportunities by reassessing their current business strategies and planning for a future market that will be very different from today’s. 

With company debt declining, the oil and gas sector is seeing increased activity in strategic M&A. This will drive consolidation, reshape the industry and create new market alignments. Industry deals with complementary sectors will also help to steadily blur the boundaries between oil and gas, power and utilities, chemicals and other businesses closely tied to energy. 

ESG requirements are continuing to evolve, and global sustainability standards have yet to be established. As a result, companies in the emissions-intensive oil and gas industry can expect ongoing challenges in setting targets, tracking performance and reporting on progress. Building momentum towards sustainability will also require cultural change and buy-in from across the workforce. These changes are likely to become easier as ESG requirements become standardised and more government and financial incentives for sustainability are put in place.

The oil and gas industry could risk its social licence to operate if it doesn’t take clear actions to reduce greenhouse gas emissions through renewables, carbon capture or other strategies. Governments, investors, consumers and other stakeholders increasingly expect companies to set net-zero targets and achieve sustainability. Businesses that act sooner rather than later will be able to demonstrate their commitment to these goals, improve resilience and build long-term value in a fast-changing economy.

Commodity traders continue to show a strong interest in short-term oil and gas investments. However, they increasingly recognise the longer-term risks created by the industry’s carbon-heavy footprint. Like other investors, they can be expected to demonstrate a growing preference for companies that are acting to improve ESG performance and achieve net-zero goals.

Digital transformation can help the industry improve efficiency and reduce emissions. But it also creates new opportunities for bad actors to launch cyber attacks against oil and gas infrastructure. Such threats could severely disrupt business, cause millions in damage and even lead to loss of life. Enhancing cyber security will be a challenge as the world’s energy system grows ever more complex, but it’s also imperative. Companies that can take a cyber security lead will have an edge over competitors.