Gaia Talk: Oil & Gas 2050 – Innovation & Sustainability
The coronavirus pandemic has exposed some hard truths for the world’s largest oil and gas companies. Many of them staggered after colossal losses in the second quarter, demonstrating the financial fragility of the industry..
Major commodity market players suffered huge losses from March to June as quarantine measures coincided with an unprecedented drop in demand.
These results will mark potentially the worst year in the history of the oil industry.
The devastating economic impact of the coronavirus outbreak prompted energy companies to cut share allocations, build up debt and sell or write off their asset values.
Head of Saudi Aramco Amin Nasser tried to reassure market participants about the prospects for the development of the energy industry earlier this month, stating that the worst is over.
World’s largest oil company reports 50 percent drop in profit for the first half of its fiscal year.
However, many experts do not share Nasser’s optimism, as they expect a significant decline in oil and gas prices until 2050..
«If you look at the financial performance, the picture has been grim in this segment over the past ten years.», – said Katie hipple, Analyst at the Institute for Energy Economics and Financial Analysis (IEEFA).
The energy sector fell 36% year on year, making it the weakest sector in the S ranking&P 500.
«The energy sector has consistently disappointed investors since 2010. Oil and gas companies are clearly finding it increasingly difficult to attract the necessary cash flow from their operations to meet shareholder expectations», – Hipple thinks.
Instead, many cash-strapped energy giants have opted to dig deeper into debt or sell off their assets to cover dividends or share buybacks..
«This is unacceptable from a financial point of view. You can get away with it from time to time, but it’s certainly not a long-term strategy for running a business.», – she added.
One of the energy industry myths exposed by the pandemic is the idea that commodity companies can profit from petrochemicals.. They are derivatives of oil and gas used for the production of plastics, pesticides and fertilizers..
This sector is widely regarded as a key driver of oil demand growth in the coming decades, offsetting the decline in demand for motor fuel.
«Even before the crisis, it was a dubious idea. Too much competition and oversupply in the market will prevent this strategy from becoming a lifesaving bridge for the energy business.», – said Hipple.
BP suddenly announced at the end of last month it agreed to sell its petrochemical business to Ineos for $ 5 billion. The UK-based company has since announced a new strategy that it says will help the firm move to clean energy in line with its plan to become a zero-carbon company by 2050 or sooner..