Leading oil and fuel companies will use the covid-19 pandemic to redefine their strategy.
The oil and fuel industry is currently experiencing its 3rd price collapse in 12 years. Following the first two shocks, the industry bounced back with no fundamental changes. However, this time is different. The current crisis involves a global pandemic and a supply shock with an unprecedented demand drop. Oil and fuel companies will have to restructure their operating models to survive in the long run.
The fuel industry has been significantly affected this past year, just like many other businesses because of the Covid-19 pandemic. Due to a decreased number of vehicles being on the road as the majority of people remain at home during lockdown, there has been less demand naturally for petrol and diesel compared to pre Covid-19 times.
Consequently the industry has needed to reevaluate how they are going to survive in 2021 and beyond, to recoup lost profits and somehow survive despite a drop in oil prices and less people using their vehicles, until lockdown restrictions ease. The need to be more energy efficient is also a pressing issue given that climate change is a prominent subject with regards to how the oil industry is able to obtain this precious source.
In the US alone, which is usually considered to be a country whereby the use of vehicles is quite high, already reported a significant decrease in the use of petrol in April 2020, something that has not been seen for at least 30 years as many drivers have not been making their usual journeys during the pandemic.
Canada in particular, was hit hard by this crisis, with oil producers unable to provide their usual supply and having to close at least 325,000 barrels daily in 2020, according to Rystad Energy’s senior analyst Thomas Liles, which of course then affects the price of fuel. So once the oil company is affected, it then trickles down into the fuel industry too.
In the UK, the Petrol Association reported that demand for petrol and diesel had reduced by 66% in 2020, which is a significant drop. This reduction in demand was seen throughout most parts of the UK. Tesco PLc even noticed how their numbers were down to at least 70%, after initial lockdown measures were introduced in March 2020. For a large supermarket company that usually does well with regards to petrol sales, this was a bitter loss to business profits.
BP also recorded a significant loss of earnings throughout 2020 compared to the year before, due to the Covid-19 pandemic. Despite having to cut back its workforce with at least 10,000 staff losing their jobs, the company still suffered a 13billion pounds loss ($18.1bn) throughout 2020. This was predominantly due to the decline in demand of road users and air travel which of course affected the oil prices. As the numbers demonstrate it has certainly hit this industry hard and is looking somewhat turbulent this year too until lockdown measures ease and life returns to normal.
To effectively reduce our carbon footprint on the planet it needs to be a global effect and not just the impact of a few. In 2019 you could see a clear distinction of how certain countries were contributing to the pollutant effects of climate change through the oil and fuel industry. The levels of carbon dioxide that Asian-Pacific countries were producing equated to 48% of global emissions compared to the US which was 18% and then all of Europe at a mere 12%. This demonstrates the enormous disparity between Asian countries and those in the West. So there needs to be a more level playing field going forward with regards to improved energy saving techniques in this industry and trying not to produce as many harmful carbon emissions in our planet.
Currently the fuel industries within Europe and the ones in the US are on two different paths with how to tackle the issue of climate change. BP does have plans to aim towards reaching net zero carbon commissions, given that the topic of climate change is pretty hot at the moment. Companies like BP, Shell and Total want to find a way to use more sustainable energy solutions whereas the American companies, ExxonMobil and Chevron, are a little more reluctant to do so at the moment.
Many US companies believe that this turbulent time is going to come to an end shortly, thus are not setting out a long term plan yet for how they are going to recover from the pandemic and their goals for zero carbon emissions by 2050. They believe that once consumers are back in their vehicles going to work or carrying out daily tasks that the demand for fuel and oil will just boom again, which will help boost their lost revenue.
Considering the Covid-19 pandemic has impacted this industry sector to such a great extent, it is surprising that perhaps the American companies are not planning for their future a little more to ensure they can keep up with technological advances when electric cars will become the norm in the not too distant future.
Major companies such as Exxon and BP recorded billions of dollars of annual losses this past year. Exxon recorded a loss of revenue of at least $22.4 billion in 2020, something it has not seen since 1999. Whereas BP’s annual loss was around the $5.7 billion mark which is its first troublesome year in a decade.So they certainly need to start planning soon on how they are going to recover from this economical turmoil.
The first thing that is likely to draw customers back to the petrol pumps is the price of petrol. Consumers generally like a bargain so if they know that prices are going to be reasonable they are more likely to fill up their vehicles. The easing of lockdown measures is certainly likely to boost the number of vehicles back on the roads. The current petrol price is 118.5p a litre, with diesel at 121.8p a litre. This is already slightly less to the January prices of 2019 whereby petrol was 121.6p a litre and diesel 131.1p a litre.
The introduction of a Right Fuel Card enables the individual to be able to fill up on fuel across a wide range of petrol stations without the need to worry about being able to finance it. It is a scheme that can also be utilised by companies to provide their employees with. It combines various brands of fuels which enables the consumer to not be limited to just one fueling company but instead has the option of many. This can be particularly useful when you need fuel and do not need to fret whether you can use the correct fuel card for the petrol station you just stopped at in a hurry.
The future of the car industry is going to focus more on electric vehicles so consumers will want to know that they can afford them as they are still rather expensive. Therefore the prices are going to need to be more affordable to encourage the general population to invest in one. Also the ability to charge their vehicles up is going to be necessary so more charging stations are certainly needed.
The US is currently taking the lead with regards to the numbers of electric vehicle charging stations already in use. Europe is currently lagging behind with only 200,000 charging points currently installed, compared to the 2 million needed to reach the sustainable target of 2025. So there is certainly room for improvement in this area.