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Oil & Gas Industry trends

Although supply disruptions and market volatility are not new to the oil and gas sector, the current situation is distinctive. The problem of underinvestment has been made worse by a convergence of economic, trade, financial, and policy issues, which has also led to a readjustment in the larger energy market. This has led to a “trilemma” of issues for all three elements of a balanced energy equation: supply diversification, energy security, and low-carbon transition. High energy costs and unprecedented cash flows for O&G corporations are the direct results of this imbalance, but it is unclear how and where the sector will make investments in the future.

As energy demand changes, refiners adapt.

Refineries may have to deal with declining demand, concerns about the economy, and a predicted 1.6 mbpd increase in global refining capacity in the upcoming year. Notably, US-based refiners are not anticipated to grow core refining capacity due to their focus on maintaining their financial health, streamlining their business processes, and converting their refineries to create renewable fuels.

For oil and gas, strong balance sheets open up opportunities.

By the end of 2022 (at an estimated annual Brent oil price of $106 per barrel), the global upstream industry is expected to achieve its highest-ever cash flows of $1.4 trillion by exercising capital restraint and concentrating on cash flow creation and distribution. All eyes are now on upstream firms to see if they will keep putting shareholder dividends first or boost their hydrocarbon reinvestment rate due to the pressing need to supply the entire world with inexpensive energy.

The shift to clean energy is anticipated to be accelerated by new policies.

A combination of favorable policies and increasing O&G cash flows in 2022 have made it possible for O&G corporations to enhance their investment in renewable energy. Even though it is anticipated that this investment will continue to rise, a number of factors could change the direction of investment or the emphasis on clean energy during the course of the upcoming year.

Deal-making is a reflection of broader market developments.

Although anticipated record cash flows and a resurgence of interest in the resource industries are very positive developments for O&G M&A, capital restraint and a shaky economic climate will probably prevent M&A in 2023. According to our poll, 27% of CEOs say that maintaining the momentum of M&A in 2023 will depend on high and stable energy prices.

 

With the healthiest balance sheet to date and continuing capital restraint, the oil and gas sector will likely approach 2023 on a positive note. In our study, 93% of O&G executives said they were optimistic about the industry in the upcoming year, reflecting the optimism of the scenario. This momentum might aid businesses in overcoming the recent underinvestment in energy and facilitate a faster energy transformation.

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