As the transition to cleaner energy technologies is accelerating and many suppliers will have to make existential changes to survive, Rystad Energy has evaluated who is better prepared
Oil and gas supply chain companies have seen their profits squeezed since the E&P cost cuts of the previous downturn – and just as the industry could finally hope for better days, the COVID-19 pandemic caused the value of 2020’s awarded contracts to slump to a 16-year low of US$446bn.
The 2020 drop in awarded contracts was a steep slide of 30% from 2019’s US$641bn. The last time the industry saw a lower total was in 2004, when awarded contracts totalled US$317bn. The supply segment that declined the most in 2020 was construction and installation with a 59% drop, followed by equipment (-46%), stimulation (-45%) and engineering (-41%).
Drilling tools and services, seismic and G&G, OCTG, land and offshore drillers, SURF and subsea equipment all declined by between 30% and 40% last year. The supply segments that fared better were operational support with awarded contract value dropping 9%, subsea services (-9%) and offshore facility leasing companies (-11%). The only supply segment that managed to score better than in 2019 was maintenance, rising 2.1% in 2020 to US$72bn.
“The past year has been a stormy one for the oilfield services industry. Out of the handful of contracts awarded, Brazil and Norway offered the lion’s share. Meanwhile, several already awarded contracts came under scrutiny, with many contractors receiving requests for revised prices,” said Chinmayi Teggi, energy research analyst at Rystad Energy.
A strategic framework to help clients navigate communication and decision-making
Even if 2021 proves to be a better year, the service industry will struggle to replicate former glories, especially as the entire energy industry is being pushed to embrace the energy transition and offer less carbon-heavy solutions.
Suppliers now face the existential question: Can they build viable, long-term strategies on their current operating model and market exposure? This question is becoming more urgent as stakeholders such as the financial industry discriminate against oil and gas-related securities due to inherent energy transition risk – the idea that value is at risk as markets deteriorate during the energy transition.
Rystad Energy’s consulting team has developed a strategic framework to help clients navigate this jungle of communication and decision-making. Among the different elements of the service, we have developed an assessment test that gauges the inherent resilience to the energy transition for supply chain companies on an as-is basis.
