If you follow Oil and Gas industry trends, you'd know the industry is currently in a transformative period. It's undergoing significant changes driven by a range of factors.
The industry must contend with the same market uncertainty many sectors face, as well as other industry-specific challenges such as legal issues, technological innovations, and sustainability. The good news is that the industry's recovery was better than anticipated in 2021, which saw oil prices soar to their highest level in 6 years.
In an industry with such rapidly changing terrain, Oil and Gas companies will need to be agile and adaptable to thrive. Keeping up with and navigating technological advances is key because digital transformations in the Oil and Gas industry will continue to be a driving force in the long term.
The Oil and Gas fleet data analytics experts at MiX Telematics have you covered with the definitive guide to the Oil and Gas industry trends in 2022. Read on to understand these trends and learn more about the path forward for the industry.
Fuel is a critical resource for most nations. As the provider of the world's fuel sources, this major industry is hugely influential and plays a vital role in the global economy. In addition to fuel or oil, petroleum is used to make a wide range of products, from pharmaceuticals to plastics.
The industry is comprised of three components: upstream, midstream, and downstream. The upstream segment of the industry concerns locating and extracting crude oil. The midstream segment covers the storage and transportation of this resource. Downstream encompasses refining crude oil to create products.
More recently, the industry started using enhanced techniques for oil recovery, such as hydraulic fracking and multi-stage drilling. These new techniques have become widely utilized but are expected to face increasing public scrutiny due to ecological concerns.
The conventional wisdom has been that high oil prices would disrupt the transition to more sustainable energy plans, but 2021 challenged this assumption. The majority of executives in this sector report that prices above $60 per barrel will actually speed up this transition. High oil prices allow companies to invest in green energy, a riskier and more expensive venture.
As the focus on climate change intensifies globally, this trend will likely continue. Expect to see more Oil and Gas companies set their sights on generating clean energy solutions such as wind and solar. Additionally, more companies will commit to reducing greenhouse gas emissions to net zero within the next 10 to 40 years.
Faced with many repetitive, time-consuming tasks and a shortage of skilled workers, energy producers are looking to automation to reduce costs and improve efficiency and productivity. Often automation involves a digital transformation that uses sensors based on the Internet of Things (IoT), artificial intelligence, and predictive systems. Utilizing automation requires a significant initial investment, eventually offset by savings from reduced labor costs and increased output.
Within the industry, companies that focus on logistics and supply chain, production operations and process control, drilling, and safety and retail operations will benefit most from investing in automation.
We've seen larger companies take advantage of these digital technologies to improve processes but expect to see smaller companies continue the trend in 2022 as these technologies become more affordable.
Wearable technology or "wearables" are devices worn as accessories or embedded in clothing with a range of practical applications. The IoT devices work by incorporating a microprocessor and an internet connection.
Wearables are used in many ways by Oil and Gas companies. They are an essential tool for employee health and safety, a top concern for the industry. Importantly, these devices can monitor safety information like employee vitals and air quality or help workers perform dangerous tasks safely.
Augmented reality and virtual reality devices can enable employees to inspect unsafe areas without physically venturing into them. Workers can use these headsets to determine if a place is safe for work.
One of the most considerable costs for the industry is deepwater exploration. Oil and Gas companies need technologies that can reduce the enormous costs of deep-sea exploration. The development of 4D seismic technology has been a game-changer in providing more cost-effective ways to map out potential oil reserves.
4D seismic technology can do everything 3D technology does but provides more data to help geophysicists and geologists determine how a reservoir will change over time. This can help a company avoid investing time in a reservoir that may not have a high yield.
From pipelines to processing plants to drilling platforms, the Oil and Gas industry requires a lot of expensive infrastructure. Oil and Gas companies see the value in investing in these assets, making much-needed improvements and repairs to their existing infrastructure.
These investments can be significant but provide assets that improve a company's supply and logistics and help them better meet consumers' needs. Firms invest in infrastructure to enhance capacity and deliver products faster.
In addition to the tight labor market impacting many industries, the Oil and Gas sector faces some unique challenges. When oil prices crashed in 2020, it triggered layoffs. While oil prices are high right now, only around 50% of those jobs have come back. The cyclical hiring patterns have made workers warier than employers in the industry. They worry that they will not be able to find reliable jobs. The older age distribution among workers in the industry underscores the need to attract new talent. Demand is greatest for employees skilled in drone technology or data science.
Companies have to work hard to find employees in this climate. Increasingly, workers are looking for flexible workplace structures that enable remote and hybrid work. To widen the pool of available talent, employers can offer these work options and set remote workers up for success by investing in collaborative tools that make virtual work easier. Regardless of whether they work remotely or in person, younger workers also appreciate more social engagement in the workplace.
Companies will need to focus on retaining younger talent, too. Remote work makes it easier for them to change jobs. Diversity and inclusion initiatives are important since younger workers are more racially diverse. Managers may need leadership training to learn how to best work with people of different backgrounds.
Another challenge energy leaders face is a lack of relevant skills in the labor force. The technological needs of the industry have outpaced the rate at which employees are upskilling. Companies must attract skilled workers to address this problem, but it's also helpful to upskill existing workers.
Hiring new employees can be expensive, and it's more affordable to train current employees. It can be time-consuming for companies to hire new workers, but it's a worthwhile investment. Employee training can allow firms to capitalize on new technologies, which will quickly pay off despite the initial costs.
Fracking has been a valuable practice for the industry. In the U.S., fracking has not been met with the same level of regulatory and legal challenges seen in some European countries. However, this is starting to change. The opposition to fracking stems from the potential for chemicals to leak into the groundwater or for an earthquake to be triggered. It's anticipated that the practice will increasingly become the subject of public scrutiny, and fracking-related activities will become more difficult. American companies will have to adjust to this new landscape and make adjustments.
It's anticipated that the pressure on the Oil and Gas industry for decarbonization will continue to increase. In 2021, the industry saw a wave of lawsuits filed by cities and states over the impact of fossil fuels on the environment. Many follow a similar strategy and claim that oil companies drove the climate crisis by being a "public nuisance."
The cases are expected to take years to play out, and it's uncertain what the outcome will be. In similar challenges in other countries, courts have ordered companies to reduce carbon emissions, but it's unclear whether U.S. courts will respond in the same way.
Oil and Gas also face pressures from investors to reduce emissions in the form of shareholder activism. This year Chevron's investors voted to reduce emissions from their products, and an activist hedge fund forced three new directors on ExxonMobil's board to tackle climate challenges.
Public scrutiny of Oil and Gas companies is expected to increase as climate change continues to cause problems domestically and abroad. Firms will continue to contend with these challenges from climate activists and other parties and should develop strategies for responding to this scrutiny before issues arise.
Conversations about the industry often center around its role in fueling climate change. What gets less attention is that the industry itself is vulnerable to the impact of extreme weather. Climate change threatens firms' infrastructure. In Alaska, for example, the Trans-Alaska Pipeline is threatened by thawing permafrost. Other weather events threaten different aspects of their operations. Floods can impact the barges or rails that transport fossil fuels. Droughts can have a negative impact on oil production, and reduced water availability can hinder fracking and refining operations. Companies will need to plan for the possibility of extreme weather and its impact on their activities.
With so many pressures on the industry, firms need to be savvy and adaptable. Oil and Gas, however, is a resilient industry with a long history of innovation. Smart producers can capitalize on this moment.