There are very few industries in the world that have been hit as hard or are set to face as many consequences as the oil and gas industry in 2020. In a recent report, Fitch Ratings forecast that oil and gas exploration and production companies would lose $1.8 trillion in revenues this year, which is six times more than the retail sector is set to lose. But the long-term consequences are going to be even more devastating. Perhaps the most visible change taking place in the oil and gas industry is the drastic cost-cutting measures being taken by the oil majors. BP has been forced to cut 10,000 jobs, or 15 percent of its workforce, as it tries to control costs in this new low oil price environment. Schlumberger had already slashed salaries and cut jobs in late March, while Shell and Chevron have announced plans to shrink their workforces.
And it isn’t just in the workforce where we are seeing unprecedented cuts. Shell’s decision to cut its dividend for the first time since 1945 was probably the single largest indicator of the long-term impact this pandemic will have on the oil industry. Shell and its fellow oil majors have prided themselves on paying out dividends regardless of market conditions in order to keep their shareholders happy. Its decision to cut its dividends marks a shift in strategy that suggests the oil major is now determined to cut its debt going forward and focus on financial sustainability rather than just pleasing shareholders.
It remains unclear if oil demand will ever return to pre-pandemic levels. From the destruction of the aviation industry to the transformation of workplace dynamics reducing daily travel and governmental pushes for renewable energy, oil demand is being attacked on all sides due to COVID-19. The oil majors seem to have recognized this global shift and are determined to make their operations as lean and sustainable as possible.
2020 is shaping up to be the most dramatic year in the history of oil markets, with a decade’s worth of change seeming to be taking place in just 365 days.