Just four years after the last crisis, the industry, once dubbed “Big Oil”, is facing the biggest challenge in its history. The profit-making machines of the commodity giants have stalled to such an extent that even the boss of the world’s largest oil company can no longer downplay the crisis.
“In the long run, fuel consumption will remain lower than before the crisis, even if the coronary pandemic ends soon. It will remain a constant depression in demand – for many years to come, ”said Shell CEO Ben van Bürden in an interview with oil market expert Daniel Jergin a few days ago.
High indebtedness, low commodity prices and pressure to focus on renewable energy have long been a burden on the industry.
Major corporations face a serious challenge: at an oil price of just under $ 40 a barrel for Brent, almost half of the world’s oil reserves are too expensive to be extracted from the ground at a profit. Experts predict that prices will rise again in the long run. To what extent this will happen is debatable.
“Oil companies are not in an easy situation. Due to the danger of a second wave of the virus, the decline in demand seems to last longer than expected, “said oil expert Wacker Pfeiffer of consulting firm Roland Berger.
In total, the seven largest oil companies – Shell, Exxon Mobil, Chevron, BP, Total, Equinor and Eni – raised $ 60 billion in debt in the second quarter, according to an analysis by the US data agency Refinitiv. Thus, corporations together account for almost half of all new debt in the global oil and gas industry.
After the fracking boom in 2012, hoping to raise the price of oil, they were accumulating more and more debt to finance the complex and expensive method of production. But after the collapse of prices in 2014, many now lack the financial cushion to survive a second crisis. More than 20 North American oil producers have already filed for bankruptcy protection this year, according to US law firm Haynes & Boone
As oil giants move from one crisis to another, the energy world is in the midst of a transition to renewable energy. Global energy needs will continue to grow, but demand for fossil fuels will decline in the face of the fight against climate change – oil companies also know this. While in the past people talked about the so-called “Peak Oil”, ie. for the end of natural oil reserves, the industry is now talking only about “Peak of demand”, the end of the demand boom.
Junior Trader Daniel Dimitrov