How the COVID-19 Pandemic Has Affected the Oil and Gas Industry and What it Means for Your Business

The COVID-19 pandemic has been a major blow to the world’s economy. One sector that has felt this impact is the oil and gas industry, as drilling rigs are shut down for safety reasons, and the industry faces unprecedented demand lows and supply disruptions. The industry has lost hundreds of thousands of jobs in the last year alone, and the losses are expected to continue. Major companies in the industry are also finding it harder to manage the supply chain with COVID-19’s effect on shipping and inventory management.

This is a major concern for businesses in the oil and gas industry and other industries that rely on its products or services. This blog post will discuss how the pandemic has affected the industry and what it means for business owners in this field and those that rely on oil and gas products, and how they can plan ahead to keep their company afloat during these trying times.

Unprecedented Demand Disruption

The COVID-19 pandemic has caused an unprecedented demand disruption. When the pandemic became a global issue, oil and natural gas prices skyrocketed. Companies have to allocate their resources to ensure that there is enough supply of these two commodities for the public at large. With more oil drilling companies scaling down their operations, this has created a scarcity in the market.

In response to the pandemic, oil and gas companies have been forced to cut production levels to conserve enough of their resources. Demand disruptions are only expected to be amplified by new COVID-19 outbreaks, currently fueled by the Delta variant. That’s why we see a spike in demand from countries that are looking into alternatives such as coal and renewable energy. This will definitely lead to an increase in the production of alternative fuel sources such as wind or solar power.  

Here are some ways that your business can be better prepared to deal with demand disruptions during these unprecedented times:

  • Keep a constant supply on hand to avoid shortages or price spikes during an emergency situation caused by high demand, natural disasters, political unrest, etc.
  • Establish relationships with companies and individuals who can provide access to alternative fuel sources to benefit from price fluctuations.
  • Consider investing in renewable energy sources to diversify your company’s portfolio and reduce its COVID-19 exposure.

Global Supply Glut Caused By Pandemic Disruptions

The COVID-19 pandemic has caused a global supply glut. Large oil and gas companies are unable to fill the demand for their products, while smaller firms have been severely hurt by the lack of work. The result is an economic crisis that will only worsen as demand continues to outstrip supply. The lack of demand has also caused stock prices to crash. Energy firms are also seeing their market value plummet as investors become increasingly uneasy about the future of these companies’ investments, which they previously believed would be stable for years to come.

Companies that produce natural gas and oil have seen a decrease in production because workers who were employed in these jobs are no longer able to work due to the pandemic. While some people predict that companies that produce natural gas will be able to stay afloat, the pandemic has caused a global supply glut that could continue into the future. What does this mean for businesses in the industry and those that rely on oil and gas products?

To overcome the challenges posed by the global oil and gas supply glut, businesses need to take steps to better prepare themselves. These steps include:

  • Developing a backup plan that will allow you to weather the storm
  • Innovation of new products and services, so they don’t have too much dependence on the oil or gas market for revenue or direct-industry products
  • Looking for opportunities in other industries that will help your business remain competitive, like renewable energy
  • Staying up to date on the latest information and trends regarding COVID-19

Worsening Financial and Structural Health of Companies

Many oil and gas companies have seen their financial health deteriorate significantly due to the COVID-19 pandemic. In fact, many of these firms are among those with some of the weakest balance sheets in recent years. While it is difficult to quantify how much worse than other industries they may be at this point, the fact is that they are not performing as well, and some of them may be on the brink of failure. A recent report by financial analysts expressed concern that the oil industry’s deteriorating performance leaves it vulnerable to a sudden collapse.

Credit ratings are down due to the COVID-19 pandemic but also because of commodity prices, which have been low for years. In addition to deteriorating credit ratings, many companies have also been forced to take on more debt or sell off assets because they are finding themselves awash with cash that cannot be invested profitably due to the COVID-19 pandemic. Businesses can better adapt and overcome these financial challenges by:

  • Utilizing a flexible and diversified approach to investment 
  • Considering unconventional strategies for cash management 
  • Planning ahead by building up reserves or setting aside funds in anticipation of future economic downturns.
  • Companies who find themselves under financial stress can also help shore up their balance sheets with COVID-19 pandemic insurance coverage, which can protect against many of the worst-case scenarios.

Decreased Need for Chemicals and Refined Products

Due to the global industrial slowdowns and travel restrictions, the demand for chemicals and refined products has decreased. Refineries have slowed down production to conserve their crude oil inventories, which are being held back as a contingency measure against COVID-19 outbreaks. While decreased production is a blessing for the environment, it has also caused an increase in crude oil prices. The rising price of refining will prompt some companies to reconsider their investment decisions and may even cause panic among others who are unprepared.

With a reduction in refined products, the impact is felt across the supply chain. For example, with a reduction in the availability of gasoline, trucking companies are outbid away from their typical suppliers. The higher price for transportation is then passed on to consumers when they purchase goods at the store or online. Similarly, with less demand for plastics — which require refining products as one of many inputs — manufacturers and distributors have begun using alternative materials such as glass, paper, and wood.

As a business, you have to take specific steps:

  • Monitor the COVID-19 pandemic and be aware of how it might affect your industry.
  • Maintain an emergency supply for chemicals, refined products, and equipment in case supplies are disrupted by industrial slowdowns or travel restrictions.
  • Investigate new opportunities with other businesses that have been impacted but may not yet feel the full impact. For example, a company that uses plastic might explore using alternatives to plastics.
  • Be prepared for your supply chain being disrupted at any point, and make sure you have stockpiles of whatever is necessary. This will help protect against price hikes and ensure business continuity in case the COVID pandemic continues into next year.

Shortage of Skilled Labor Due to Pandemic Restrictions

In the wake of lay-offs and furloughs, companies in the oil and gas industry are finding it challenging to find skilled labor. Many of these employees have been laid off due to COVID-19 restrictions and other pandemic measures taken by the government, including travel bans. While there are some programs that provide retraining for oil industry workers in various specialties so they can be re-employed within a few months, many companies are finding it difficult to find those qualified for their open positions.

While companies have been able to fill many of the vacant posts by hiring skilled workers from other countries, this is becoming increasingly difficult due to travel restrictions and quarantine zones in several countries experiencing outbreaks. The oil and gas industry will be particularly affected given its large workforce. Without qualified employees to work on both offshore drilling platforms and refineries, production rates for petroleum products are expected to decrease. Although this may seem like a small trickle-down effect, it can result in higher prices for consumers who rely on products like gasoline, diesel fuel, and heating oil.

Overcoming skilled labor challenges isn’t easy, but businesses can take a few preventative steps:

  • Adopt safety measures to protect employees and customers from the COVID-19 virus
  • Plan for labor shortages in critical positions by recruiting and training new employees
  • Work closely with your human resources department to retrain or replace skilled workers who may have been laid off
  • Increase productivity by streamlining production processes and adopting new technologies 
  • Use flexibility in work schedules as an incentive for better employee performance
  • Embrace change, focus on what you can control, and prepare for the unexpected

Changes in Industry Business Models

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Due to the wide-ranging impacts of the COVID-19 pandemic, larger and healthier companies in the oil and gas industries may consider altering or accelerating their plans to diversify into other energy sectors to adapt to the new norm, prompting a change in industry business models to boost performance. To combat the pandemic’s effects, some oil companies have sought new operations outside of their traditional geographic regions to reduce exposure. Changing your company’s business model to be more sustainable in the new business climate can help to best support your company’s long-term success.

While the oil and gas industry is expected to thrive despite the challenges, businesses that rely on the industry must adapt and evolve to avoid getting left behind. For instance, both oil and gas companies and consumer-product companies may need to shift their business development strategies. These include:

For oil and gas companies:

  • Proactively investigate opportunities in other energy sectors to diversify operations.  
  • With the COVID-19 pandemic continuing to disrupt oil supply chains, we may see some small oil producers acquire larger ones or merge with competitors so they can remain competitive. This has been a common tactic for many successful companies.
  • Identify and focus on opportunities in emerging markets to reduce company exposure. 

For consumer product companies:

  • Keep COVID-19 in mind when designing new products or services as customer preferences may shift to more sustainable offerings that contribute less to climate change, such as electric cars. 
  • Think about what strategies will be most successful and how or if they need to change. This can help companies avoid being left behind while also helping them align with current consumer preferences.
  • Think of alternative supply chains that can help minimize COVID-19 impacts on the business.

Conclusion

While the COVID-19 pandemic has significantly impacted the oil and gas industry and the businesses that rely on it, it has also provided opportunities for new industries to step in. From the development of renewable energy sources to a boom in natural gas extraction and infrastructure repair efforts, there are many ways that your business can both help the country get back on its feet and reap financial benefits for doing so. With proper planning and execution of procedures, businesses can minimize their exposure risk and have a positive impact on the economy.

Author Bio:

Nicole Hooks is a consultant for EcoGreen Industries, which supplies cannabis extraction equipment and supplies to wholesale extractors. EcoGreen provides a wide variety of products for sale, including ethanol and 55-gallon drums (liquid solvents). It is a trusted provider of the best quality extracting products and was the first to offer its specific grade of solvents. 

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