The Oil and Gas Industry Must Prepare For a Surge in Demand

by | Oct 20, 2020

2020 has been a tough year for the oil and gas drilling industry. Even without a once-in-a-century pandemic, there are always pressing challenges to deal with: discovering and retaining human capital as more expert workers retire, ramping up operations and production while reducing costs, addressing sustainability pressures, and so on. Falling market prices, plus the unprecedented disruptions of the COVID-19 pandemic, created severe new pressures.

By May, as global lockdowns curtailed supply chain movements, global demand for oil had plummeted by as much as 30%. With demand in the doldrums, storage facilities reached peak capacities. The resulting surplus drove down oil prices to the lowest levels for decades. Super producers Russia and Saudi Arabia had to shift their oil supplies at heavily discounted rates. The oil and gas drilling industry ground to a halt. 

Oil and drilling news from Baker Hughes showed a huge decline in drilling activities in the United States. From mid-March to early June, the number of rigs went down by as much as 64.1%. Of the 792 oil rigs in the North American region, only 284 remained operational. The Permian Basin took the biggest hit, with only 141 oil rigs left functional out of 418 within the same period.

Oil and Gas Drilling Industry Forecasts Point to More Positive Coming Quarters

Enough of the doom and gloom. When will the oil and drilling news become more cheerful? Predictions are always tricky, but one thing is certain: a COVID-19 vaccine will make a massive difference. Countries are working hard on a vaccine, with Russia and China even reportedly sharing research data and technology. In its August 2020 forecast, Goldman Sachs anticipated “at least one vaccine” available for distribution by Q2 2021. 

The prospect of a vaccine plays into a more positive wider economic picture. Goldman Sachs recently improved its economic outlook for 2021. From its early prediction of 5.6% GDP, Goldman Sachs now expects 2021 GDP growth to reach 6.2%. 

As a result, recent forecasts from research organizations and reputable oil and gas drilling news outlets indicate a positive outlook through 2020 and 2021. Despite the disruptions,  market research firm Technavio projects that the global oil and gas drilling bits market will grow by as much as $1.38 billion between 2020 to 2024. That’s a 7% increase within a five-year period.

The offshore drilling market also shows signs of returning resilience. According to recent 2020-2024 offshore oil drilling analyses, the sector is poised to grow by 4.31% by the end of 2020, and experience an incremental increase of $11.34 billion within the forecast period. In a recent industry outlook, experts anticipate the United States Directional Drilling Services Market to grow at a steady rate of 9.3% CAGR from 2020 to 2027.

The report cited “surging exploration and production activities for oil and gas” as the primary drivers of the oil and gas drilling industry’s growth in the forthcoming years. An obvious example is the Trump administration’s recent move to finalize the government’s plan to allow oil and gas drilling activities in the 19-million-acre Arctic National Wildlife Refuge in Alaska. Contentious as this is – and everyone hopes that any ecological damage can be either fully prevented or absolutely minimized – the Arctic National Wildlife Refuge’s oil reserves amount to 10.4 billion barrels. That’s a lot of drilling. 

Oil Production-Consumption Gap Key To Forthcoming Oil Drilling Boom 

That was a lot of numbers, but here’s the takeaway: Gradually, countries around the world are either lifting – or making more sophisticated – their economic shutdowns. At the same time, we are inching ever closer to a COVID-19 vaccine. As these forces dovetail, demand and consumption of oil and natural gas will go up. For the oil and gas drilling industry, phones will start ringing off the hook.

A big caveat here is that the current massive oil inventory – the result of months of limited economic activity – will initially keep the demand for oil production in check. But this won’t last forever. The oil and gas drilling industry will probably have to wait for a while. The unusually big divide between production and consumption will set up the oil and gas drilling industry for a decidedly increased activity in late 2020 and all through 2021.

Oil and gas drilling companies only have to look at what happened at previous times when the gap between consumption and production was in the double-digit percentage range. Take the end of 2014 through early 2016. The gap triggered a huge demand for oil drilling services. We should expect this history to repeat itself. As oil consumption shoots up and supply lines from surplus oil inventories start to fail, production for drilling and exploration will boom.

Depending on how fast oil drilling service providers and operators can react, this could significantly escalate prices. When this surge comes, scalability becomes a crucial factor for all players in the oil and gas drilling industry. Those that can scale successfully when the demand for drilling services surges stand to gain significant market share and revenue growth. But businesses have to be ready to go.  

Be Ready When The Demand Comes

Players in the oil and gas drilling industry are looking at a potential surge in demand in late 2020 and into 2021. Scalability is critical, once this demand intensifies.

The slump in production caused by the COVID-19 pandemic, as well as the existing industry challenges, means that many oil and gas drilling services providers lack expert personnel. As demand ramps up over the next few quarters, we’ll see turnover decrease and hiring go up across the industry.

This brings with it the pressures of fast-paced hiring and the need to get those people productive and trained on the business processes in place. Companies need to invest in field management technologies to be able to scale and operate at a high level. Businesses must move away from their legacy systems and embrace new field management tools to not just meet the demand when it comes, but to effectively manage it, and regain ground and opportunities lost during a difficult year.