COVID-19 impact on the Oil & Gas industry

The Indian Oil & Gas (O&G) industry is notable in the global context – it contributes to 5.2% of the global oil demand, is among the top three large markets in demand growth and 4th in the world in refining capacity (~249 MTPA). India is also very imports-dependent, with oil imports at 84% and gas imports at 53% of their respective annual demands. Incidentally, O&G imports constituted ~25% of India’s import bill in FY’19. Therefore the impact of COVID-19, whether due to the wide-spread demand destruction, or the downward spiral of crude prices, is of enormous concern for all of the Indian O&G industry participants.

The Indian O&G industry is usually proficient at disaster response and its effectiveness has been demonstrated across a range of disaster scenarios in the past. With COVID-19 too, the industry has done reasonably well thus far, as evinced by the near continuous operations and availability of different fuels, almost across the entire country. However, most O&G CXOs believe that the recovery for the sector is likely to be longer, and more protracted than anticipated.

The recovery for the Indian economy lies between a couple of equally plausible but alternate futures – a ‘protracted’ recovery (what is popularly known as ‘U’ shaped recovery) or recovery in ‘Fits and Starts’ – speedy improvement to start with, but with a future dip(s) due to a second/third wave of the viral infections (a ‘W’ shaped recovery). While the jury is still out on the exact recovery path that the Indian economy will take, the real need of the hour for the O&G industry is to rise beyond the specifics of COVID-19 response and focus instead on what industry constituents could do to emerge stronger and ‘thrive’ in the brave new world. Managements should therefore prioritise their thinking onto the medium-to-long term opportunities. This requires the industry to fast-forward building intrinsic organisational capabilities along three inter-connected dimensions.

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Joel James
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Oil and Gas Research