The impact of COVID-19 on the oil and gas sector

Article by Achilles

Date: 21 April 2020 | Time to read: 5 mins

Back in January we wrote about the key trends for the oil and gas sector in 2020.  Since then we have seen the first ever negative oil price as it plummeted on Monday 20 April 2020, to -$37 USD per barrel. As demand drops the North Sea’s workforce has fallen by 40%, with more than 4,000 contractor jobs cut due to the impact of COVID-19 on the oil and gas sector.

We recognised this is a stressful situation for employees and small businesses working in the sector. Looking back, Achilles oil and gas communities were created in 1997 when the oil price was only $10 a barrel and massive workforce reduction made it harder for long term recovery, but that’s only one part of a much larger situation that needs to be addressed.

COVID-19 is taking centre stage in supply chain conversations, impacting many areas of business with suppliers struggling to stay afloat with the negative oil price, so are the key trends we forecast in January still relevant?

Are the key trends still relevant with the impact of COVID-19 on the oil and gas sector?

The key trends for the oil and gas sector in 2020 may have changed context, but the forecast themes are still prevailing during this critical time.

Leading on energy diversification

The UK government’s commitment to net zero emissions by 2050 is still on track and companies are still under pressure to manage the carbon impact of their own operations while also taking the lead in finding solutions to meet the world’s future energy needs.

Oil and Gas projects may be postponed and demand for crude oil has fallen, but energy needs haven’t changed. Every business and household need energy to operate. To survive the impact of COVID-19 on the oil and gas sector and the negative oil price, companies need to diversify quicker and in more clever ways to keep up with the world’s energy needs. The ability to quickly adapt to changing conditions is key to survival.

Health and safety first

From handwashing to social distancing, we have seen the UK, Spain and Italy go into full lockdown amid COVID-19 health and safety concerns, affecting the day-to-day running of oil and gas operations.

But the impact of COVID-19 goes further than this. A recent survey by Deltapoll demonstrates how opinion has undergone a significant shift, which is likely to impact ongoing priorities for what is considered healthy ways of working.  For example, almost 60% of respondents believe that international travel and working life will change forever. Not only will the cost and hassle of international travel increase, but the risk associated with it will also rise.

Offsetting these emerging sentiments, we believe it is highly unlikely that all operations will become localised.  Therefore, more than ever, it will be critical for all practitioners in the oil and gas sector to have global trusted partners acting as their eyes and ears to monitor an internationally diverse set of suppliers and helping to redefine what safety means for the industry.

Building supply chain resilience

Even suppliers have suppliers, so building some resilience in your own supply chain is of utmost importance to survive impact of COVID-19 on the oil and gas sector.

In January, we highlighted the financial resilience of Oil and Gas suppliers with 25% recording a loss in their most recent financial year.  In a world of furlough, a credit crunch and a cash-flow squeeze, this is more relevant than ever.  If this trend continues, supply chains could shrink as businesses fold as a result of the negative oil price. In this environment, it is more important than ever that buyers and suppliers are well networked within their industry.

While it may seem counter-intuitive, it is more critical than ever that you are visible to relevant buyers for all of the products and services you can provide as we have seen buyers conducting more searches of Achilles Community data in March 2020 (compared to February), driven by a need to identify additional sources of supply to help keep the movement of goods flowing into critically hit areas such as ENI who are sourcing critical equipment such as ventilators in the Oil and Gas Europe Network to ship to Italy. Or construction companies being urged to donate PPE equipment to local healthcare services due to an international shortage of PPE equipment. Achilles suppliers can now take out a complimentary trial of our construction community Building Confidence to increase visibility of their products and services during this critical time.

Collaborating to face challenges

Nearly 56% of the suppliers on our network in the most heavily affected areas are Micro or Small enterprises. To survive the impact of COVID-19 on the oil and gas sector and the negative oil price, suppliers need to work together, share best practice, new technology and learnings will be more important than ever to get through together.

Join our webinar on 29 April at 11am, where we take a tactical approach to COVID-19 for suppliers. Our experts will talk through risks suppliers face including insolvency, cashflow and force majeure, along with the importance of being visible paired with practical advice you can implement today.



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