Top risks in the O&G sector in 2022

KPMG’s oil and gas magazine Drilling Down explains why geopolitical, cyber and talent risks are the top risks for the sector in 2022 and what you can do to lessen their impact on your organization.

The oil and gas industry has a unique opportunity to change the collective story by taking charge of the measures it can take to drive the planet toward a net zero reality. While the sector remains in the crosshairs of cyber perpetrators, there is also a prevailing need to go beyond the creation of shareholder value in addition to strengthening industry-wide defenses and controls. It is crucial that oil and gas organizations give more significance to investing in employees, supporting communities, delivering value to customers, and ensuring that suppliers are being dealt with ethically and fairly.

To cease the temporary financial break induced by geopolitical and supply chain-driven uncertainties, the industry, as a whole, must strive to be more proactive communication-wise to better promote its measures to attain common good.

Kuwait, along with the other OPEC nations, is going through a recovery phase, with oil prices reaching pre-pandemic levels. The country is also nearing its maximum production capacity, indicating a recovery for the sector. Having said this, the oil companies are cognizant of the environmental needs and constant demand to use sustainable methods for the production of crude oil. The Kuwait Oil Company (KOC), in its 2040 strategy, has clearly listed the usage of sustainable methods to produce oil as one of its strategic objectives. This is a positive sign for the sector and other oil companies may soon follow the lead and implement similar initiatives in their strategic plan.

Aref Judeh

Partner — Audit

KPMG in Kuwait

Top oil & gas risks

The uncertain state of the world’s oil supply

While a growing oil surplus is anticipated in the second half of 2022, the tightness in the oil market is still apparent. We are witnessing the consequences of a supply shock with a tight oil supply and supply-related disruptions at the helm. These factors are skyrocketing oil prices to over USD100 per barrel besides the fact that volatility may still linger for a bit. However, if the potential oversupply scenario becomes a reality, and Organization of the Petroleum Exporting Countries (OPEC) relaxes the cuts it imposed in 2020 and the US’ conventional production rises as predicted, organizations may end up having an excess of about 6.4 million barrels toward the end of this year. Contrastingly, there is a significant possibility that the dynamics in Europe and China’s economic and environmental policies in the bargain may slash the global oil demand, impacting the overall global economy.
Impact of rising geopolitical tensions on Europe’s gas supply and prices

The tense geopolitical landscape in Europe has caused the US and EU to impose economic sanctions on some of the regions. This has impacted gas supplies and prices, primarily in Europe. The prevalent fear is that the sanctions may dampen EU’s economic growth this year as they look to warp significantly large volumes of gas and cause a hike in the prices. There is a possibility that EU might impede its ‘green transition’ energy policies to tackle momentary roadblocks. While the impact of the crisis remains to be seen, how it unravels in the future will play a key role in determining what the implications for the energy mix in Europe will be during the 5- to 10-year horizon.
Potential impact of global decarbonization efforts on the oil and gas industry

Based on the trajectory that the global energy transformation efforts have taken, it is evident that there is no universal approach that countries can rely on and are, hence, going at their own pace. Additionally, the turnout of events in Europe point toward the fact that politics has a crucial role in all of this. There is a potential that the fallout from the crisis in Europe may propel EU’s ‘Fit for 55’ proposals, which aim to cutdown greenhouse (GHG) emissions about 55% by 2030. It is likely that the road to energy transformation will not be the smoothest. Governments will have to strike the balance between minimizing transformation effort-driven pain and maximizing growth in terms of energy policies.
The search for talent

To be able to compete for talent and succeed, the oil and gas industry must give up its traditional ways and become agile enough to embrace the realities of the modern workforce. According to the Brunel International/Oil and Gas Job Search, Energy Outlook Report 2021–2022, 43% of the present energy workers are planning to leave the industry within the next five years. It further highlighted that about 56% of the current oil and gas workers are looking to shift to renewables organizations. The workforce is diversifying rapidly, which is why it is all the more important for the sector to forge a value proposition that is aligned with the values of new/potential hires. This could be achieved through flexible working arrangements, prioritization of ESG and diversity, and inclusion demographics, among other initiatives.

For as uphill a task as it may seem, oil and gas companies will need to change considering that uncertainty is looming and there is no returning to where the world once was. It is anticipated that governments/activist and consumer groups will keep pursuing decarbonization, among other climate control efforts, and introducing gradual technology tweaks may not suffice. While short-term supply and price issues and geopolitical events may affect how the transformation fares, there are no two ways about the fact that in preparation for the inevitable, the oil and gas industry must do the inevitable and change track.

This issue of the Drilling Down magazine offers detailed insights on specific risks surrounding oil and gas-related businesses, with the goal of promoting discussions and debate around them. This essay is a summary of the first of four articles featured in the magazine: Top risks facing the oil and gas industry in 2022 — and what you can do about it. The other three articles are (1) Accelerating OT security for rapid risk reduction; (2) Bringing cyber process hazard analysis to the digital era; and (3) Safeguard your digital environments from all angles.