The energy industry is undergoing rapid changes, and many companies are struggling to adapt. Across the O&G industry, recent years have seen an explosion of unconventional oil and gas production which has led to rapid technological advances but also a record period of low commodity prices. Even as activity levels increased both exploration and production and service companies struggled to achieve profitability.
As the global economic situation becomes increasingly uncertain, some companies are shifting their focus back to offshore and international projects which offer more attractive long-term free cash flow generating profiles. The industry is currently undergoing an unprecedented downturn due to both excess supply and drastically reduced demand leading to a drastic pullback in spending leading to drastic reductions in drilling, completion, and production activity.
The petrochemical and midstream sectors are also at a turning point, with both having seen a once in a generation build out of capacity driven by the availability of cheap natural gas and oil and the need to transport it. Service companies active in these sectors need to adjust their business models as spending shifts from CAPEX to OPEX related activities including inspection, repair, and maintenance.
At the same time, renewable generation (primarily from wind and solar) accounts for a steadily growing portion of global capacity and an even greater share of investment. Solar and wind are increasingly competitive with other generation sources even without subsidies due to rapid increases in the efficiency of photovoltaic cells and a new generation of larger more efficient wind turbines. Issues with intermittency have led to an increase in the deployment of energy storage and increasing investment in a more robust, smarter grid.
Across the energy sector from oil and gas to renewables we are in the early stages of a digital transformation which promises to enable companies to make smarter decisions and enable greater profits. However, for the most part, it is still difficult to identify which technologies will be deployed successfully and which companies will emerge as the leaders in this space.