Kay Rieck: Covid’s unintended consequences
Few would argue that 2020 will have been pivotal for many sectors. The virtual shut down of the global economy had particular ramifications for the oil and gas sector, which underpins most economic activity around the world, either as a provider of raw materials or as a provider of power for transportation, manufacturing and domestic life. As the world economy climbs falteringly off its knees, the need to make the oil and gas sector more flexible is becoming more and more apparent.
Covid-19 showed us many things, but from a supply chain perspective its impact sometimes felt random. Supply of high-end telescopes virtually dried up because many furloughed company executives found themselves with a little time on their hands to stare up at the stars in wonder, while simultaneously down on Earth many of the batteries that mid- to high-end telescopes rely on were required for hospital equipment. Roof slates and house-bricks were in short supply as people took the opportunity to do the odd jobs that they’d been putting off. Supply of elastic became tight because of the increased demand for personal protective equipment and masks.
A complete collapse in demand coupled with a (mercifully short) price war, meant that oil and gas was not in short supply.
Normal service resumed
With the world gradually emerging from a year of lockdowns and sporadic economic activity, it would be easy to expect that economies would come quickly roaring back, that pent-up demand would release consumers in their droves and we’d soon be back to talking about healthy economic growth.
Unfortunately, this is not yet the case. Certain parts of the economy have indeed come roaring back, but it’s not always the ones that you might have expected and as a result the difficulties in supply continue. For example in the US, car rentals have soared as the vaccination programme has gained momentum. People are preferring to travel by private car rather than shared public vehicles, but rental companies have not invested in their fleets for 12 months meaning that supply is short. In some places, astronomical prices are being charged as a result and rental companies that were scrambling for Chapter 11 protection 12 months ago are now struggling to keep up with demand.
Given that the oil and gas sector is an enabler of economic activity, it is important that it is able to respond to changes in demand. Even in the best-case scenario, it is likely be another good few months before economic activity becomes anything like consistent so it is vital that oil and gas organisations look at ways to enhance the efficiency of their supply chains to ensure that they respond efficiently as demand changes.
Firms that get this right will be able to get back to normal operations far more quickly than those that don’t, and if the sector as a whole fails to find an efficient way to match supply to demand, then there is a risk that businesses might find alternative ways of getting things done.
About the author
Kay Rieck has been active on the investment side of the oil and gas sector for more than two decades. Starting his career as a financial adviser and stockbroker on the New York Stock Exchange, he quickly developed an interest in natural resources and associated assets building his expertise with investment banking and asset management roles at the New York Board of Trade and the Chicago Board of Trade. Utilising his exceptional network of global contacts, he started his first exploration and production company in the US in 2008, selecting investments across the Haynesville Shale, Permian basin, Eagle Ford shale, Dimmit county and elsewhere that offered exceptional prospective returns.