The oil and gas industry has three challenges; to produce more energy at a lower cost with fewer emissions, collectively invest about US$500 billion each year to keep up with the demand, and to demonstrate differential and durable cash flows.
Lower Cost, Better Returns on Cleaner Energy
The first challenge is that, as the world’s population increases, energy demand will rebound and rise after COVID-19. Simultaneously, the planet is demanding cleaner energy, so oil and gas firms must provide it with fewer emissions.
Despite the complexity of the mission, several organisations are eager to take it on. Industry, universities, and governments are all working together to minimise pollution and generate cleaner energy these days.
Oil and gas producers must keep costs down as investors expect higher returns. Although corporations cannot regulate the price of their goods, they may control their annual spending.
Oil and Gas Industry Needs To Keep Up With the Demand
Demand increases in line with population growth. Therefore, the oil and gas industry must spend roughly $500 billion per year just to keep up with demand.
However, because of the strong headwind and increasing capital costs, it is not easy. The sector was underinvested in 2015. Once the global spare capacity is exhausted, it would be essential to reinvest in sustaining and rising oil and gas production to meet customers’ demands worldwide.
This challenge will be difficult to meet, and if it is not handled successfully to develop or redevelop supply to keep up with demand, higher oil and gas prices will result.
Consistent Cash Flows
The third challenge for oil and gas companies is to prove that their cash flows are differentiated and long-term. In the past, many businesses have overspent their cash flow in the name of expansion.
Energy companies must demonstrate capital management and a commitment to returning money to shareholders regularly. The industry’s good work will be visible in the returns they record as the world recovers from the pandemic.
The world will use oil and gas for decades to come. Consumers will require electricity access and that it be safe, reliable, and dependable. The oil and gas industry can meet these challenges, but it must collaborate with consumers, governments, and universities.