George Schutte, vice president energy services at Crane Worldwide Logistics, shares his thoughts on what the economic impact of the Covid-19 pandemic will be on the oil and gas sector.
Speaking on Crane Worldwide’s podcast series, Schutte noted that although the energy industry has been negatively impacted by Covid-19, it was already in a downward slump prior to the pandemic.
“The gap between supply and demand has been huge,” said Schutte, and the industry has since seen a lot of contracts cancelled and a reduction in capital expenditure, causing significant economic ramifications for Crane Worldwide’s clients and the industry in general.
With regard to what the future of the energy industry may look like, Schutte said: “Firstly, we have to consider what the new ‘normal’ looks like, today we are still in the middle of the crisis and we see the spread of the virus continue in various parts of the world, so to date we do not actually know what ‘normal’ means and is. What we do know, is that we are looking at the long term over multiple years.”
He continued: “If you look at this in the context of the oil industry, the operator’s decisions on capital flows and expenditure will drive the direction of the industry. By nature, they are companies who think in the long term and plan their business 15 to 25 years in the future.”
Schutte said that given the high demand for hydrocarbons, he remains confident the industry will bounce back. The area of concern is the reduction in expenditure on research and development, which could hinder development of alternate energy sources.
In terms of recovery for the energy sector, Schutte said: “For the downstream energy business, it will obviously be driven by consumer demand, but the number one driver will be the oil price.
“We have actually seen negative oil prices over the past few months…to instigate further consumption, we need to burn off the current inventories that have been built up and we are starting to see that happen slowly, and we are looking for the point when demand will outstrip supply.”
Schutte also explained that some key trends are emerging. Firstly, a focus on outsourcing: “It is important for the industry to focus on their core competencies and outsourcing functions with key supply chain partners can enable our clients to focus on their business operations as well as introduce more operational efficiency.”
Additionally, Schutte said that there is a strong focus on eliminating waste and inefficiencies in supply chains – as companies try to control costs during difficult times.
Schutte outlined a third key trend in the energy industry: “Finally, industry consolidation is a focus area, eliminating multiple suppliers to ensure key partnerships play a role in the future.”
The Crane Worldwide podcast in which Schutte shares his industry insight can be found here.