The demand for oil and gas has returned to prepandemic levels; however, the energy transition is expected to change the demand trajectory for the industry over the medium- to long term.
For oil, under all bottom-up scenarios modeled in our recent Global Energy Perspective 2024 report, demand is projected to continue to grow in the short term before plateauing over the next five to seven years and then declining due to increased electric vehicle (EV) uptake, continued plastic recycling, and growth in the demand for sustainable fuels. However, new oil supply would still be required to meet expected demand given that the predicted decline in existing oil fields would exceed the decline in oil demand to 2040.
In the case of natural gas, demand is projected to rise in the medium term across all scenarios, primarily driven by growing demand for power, blue hydrogen, and its essential role in high-heat industrial applications. Liquefied natural gas (LNG) has already played a crucial role in addressing recent demand spikes—its growth has been eight times faster than total gas demand. While sufficient LNG supply is expected to come online this decade, tightness is projected to emerge in the early 2030s.
Given the overall demand and supply picture, both oil and gas are expected to remain critical components of the energy landscape over the next decade and the industry will be instrumental in achieving an orderly energy transition. However, recent geopolitical developments have heightened the focus on affordability and energy security, with sustainability remaining a key imperative. This raises the question: What role can the oil and gas industry play in balancing energy affordability, security of supply, competitiveness, and sustainability?
When looking at how the industry can achieve this balance, we see five trends emerging from current industry players: upstream growth and consolidation, reshaping the downstream sector, diverging new energy bets, an observed performance push in the industry, and a more focused sustainability agenda.
In this article, we explore the current financial state of the oil and gas industry, the key trends, challenges, and opportunities, as well as questions CEOs will need to resolve to succeed in this decisive decade and beyond.
Against the backdrop of these evolving themes and considerations, CEOs will need to resolve a number of questions to generate value beyond 2030:
- What are the best opportunities to deliver upstream longevity and at-scale profitable positions while minimizing stranded asset risks beyond 2030?
- What conditions or attributes are required to make new energy bets profitable and scalable, and how can they be used best to leverage existing (or future) competitive advantages?
- How can M&A be used to accelerate growth, and how can deals be structured for maximum return on investment?
- How can excellence and innovation in capital projects be driven, particularly in light of new supply chain realities?
- How can the use of AI and new technology be scaled in a way that is truly anchored to delivering business value?
- Are current organizational models still fit for purpose, or is it time to simplify them, for example, by lowering G&A spending, refocusing on asset-centricity, or reinvigorating leadership?
- How can investor expectations be raised for long-term, profitable growth in an era characterized by change and disruption?
- What more can the industry do regarding emissions reductions to help meet the goals of the Paris Agreement?
How the industry will adapt to move with the changing times remains to be seen, but it is clear that companies need a solid strategy to ensure their success beyond the current buoyant market conditions.
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