Business Trends

SAVIC

Posted on October 04, 2021  Less than a 35 seconds read

Why is the oil & gas industry suffering?

Overview

Among the top three large markets in global demand growth, oil and gas (O&G) are the leading industries in India that contribute to 5.2% of global oil demand. Furthermore, Indian refineries rank 4th in the world (*249 MTPA) in terms of capacity. As with China, India is highly reliant on imports: oil imports make up 84% of its annual needs and gas imports make up 53%.A surprising 25 percent of India's import bills in FY'19 came from O&G imports. All industry players in the Indian O&G sector are therefore keenly aware of the impact of COVID-19, including its widespread destruction of demand as well as the downward spiral of crude prices.

The Indian oil and gas industry has historically proven capable of responding to disasters in a number of different scenarios.COVID-19 has also proved to be quite successful so far, as the operation is nearly continuous, and fuel is available almost across the whole country.

A rapid recovery to start with, followed by a dip in the future due to a second or third wave of viral infections (a W shaped recovery) would be the two viable futures for the Indian economy. Despite the uncertainty about the exact recovery path that India's economic recovery will take, the O&G industry should focus on how to prepare to stand strong and 'thrive' after the start of the new year instead of what it must do to respond to COVID-19.Management should thus prioritize medium-to-long-term opportunities

• Start with an agile operations mindset. Indian O&G companies tend to run their operations according to a deterministic timeline. In order to operate in different parts of the country, companies have established strong value chains (assets, supply chains , customer touchpoints, etc.).Interestingly, companies have elaborate methods for sensing and reacting to safety incidents but have not necessarily created the same processes for responding to business events. A variety of factors are causing disruption in the O&G industry: nimbler substitutes, changing consumer preferences, and increasingly fluid geopolitical conditions. Sensing and divergent thinking must be cultivated more frequently in the workplace, so that companies have the capability of looking around corners, keeping a keen eye on the outside environment, realizing implications well in advance, and taking appropriate actions.
• As a second principle, look at the big picture: The O&G industry was among the first adopters of scenario planning globally and in India. Indian oil and gas firms have not always followed-through on making the substantial investments to back alternate scenarios (with scaling-up options available), and to do everything they can to accelerate the emergence of the desired future scenario. Management only sees these bets from a narrow economic point-of-view, preventing the company from advancing on any alternatives other than the pet management case. Consequently, the benefits of scenario planning are often undermined.
• Third, Develop a partner ecosystem: Indian O&G companies have a history of forming long-term, arms-length relationships with their suppliers and vendors. In other sectors, however, an array of alliances and investments are used to create complementary value over time. By forming such alliances, companies can get into positions earlier, enabling them to seize opportunities or weather storms like COVID-19 better. Such alliances may present challenges to some industry conventions and could spawn collaborations with industry partners in areas such as advanced analytics , behavioral sciences, logistics, mobile/online payments, technology., etc., which in turn could help incumbents bolster their offensive/defensive strategies.

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