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Default CategoryJun 29, 2020

Oil and Gas: Near-term Innovation Trends Amidst Disruption

Kevin McDonald, and Meredith Del Papa

Firms across all industries are experiencing the aftershocks of the novel coronavirus (COVID-19) on their 2020 outlooks. Each industry has forged their own path to flexibility, often pivoting to use existing assets to meet market needs amidst disruption. More specifically, large global oil and gas (O&G) firms with globally integrated value chains were well positioned with cash on hand to pivot production to come to the aid of local healthcare systems.

The demand drop for oil has been far-reaching. Australia saw a decrease in the demand for crude oil due to a weakened manufacturing activity, leading to delayed investments and decreased capital expenditures. In Canada, the price of their Western Canada Select crude oil dropped significantly, trading at all-time lows. Germany responded to lower than expected demand for oil due to severely reduced travel activity by decreasing oil drilling and production. The same is true in the United Kingdom, where production volume is low, and many workers have been laid off or furloughed to reduce the spread of the virus.

At home in the United States, production volume has remained steady while demand has dropped significantly since the start of the year. A recent IBIS World report shows that the price of West Texas Intermediate crude, a global benchmark for oil pricing, is down approximately 67.3% year-to-date. While concerns have mounted around overcapacity in the market, many oil and gas producers have already begun reducing output to adjust to lower aggregate demand.

Amidst global disruption, several large O&G firms with globally integrated value chains have chosen to re-think their production capabilities. Trends show these firms pivoting to near-term innovation by adapting chemical production, collaborating with strategic partners, and leveraging existing R&D efforts to meet pressing health care needs.

o&g near-term innovation trends

  • Collaborating with representatives in industry, academia, and government to connect customers with providers, building a new supply chain to respond to medical needs

  • Increasing manufacturing capacity of specialized polypropylene to enable production of medical gowns

  • Increasing production of isopropyl alcohol, a key ingredient in medical-grade hand sanitizer, to donate to pandemic response efforts

  • Increasing ethanol production from sugarcane to produce disinfectant for local hospitals and health care centers

  • Donating supercomputing capability to accelerate coronavirus research

  • Leveraging 3D printing to provide valves for emergency ventilation masks, mask clips, and face shields

conclusion

A commonly held belief is that large corporations are unable to move with agility to respond to crisis, but several of the top O&G firms have proven their flexibility. A recent study found that the innovation success rates of smaller companies were not higher in any statistically significant way than those of larger companies.

Each of these firms strategically chose innovation investment years before the COVID-19 pandemic became a reality. When market needs changed overnight, each firm was able to respond quickly, and in their own unique way, to respond to life-altering customer needs.

If you are interested in learning more about applying innovation in the oil and gas industry, email us at findoutmore@credera.com.