Resilience in energy

Adapted from an article originally published on kpmg.com by Regina Mayor, Leadership, Global and U.S. Head of Energy and Natural Resources

The novel coronavirus (COVID-19) has already had substantial economy wide impact across the globe. As the virus continues to spread and many countries impose quarantines as well social distancing, the uncertainty relating to GDP impact and unemployment is expected to be much higher than any other pandemic in the history of man-kind as per IMF. Governments are intervening and countries are declaring national emergencies – disrupting global markets. It’s true that the negative impact on global growth brought on by this virus will be substantial – though the exact extent of impact is not known until COVID-19 runs its course. IMF has already warned that global economy is set for its sharpest reversal since Great Depression. 

In the energy sector, COVID-19 is creating a remarkable demand destruction event: supply chains halted as the need for oil dropped significantly amid travel bans and local quarantines. In addition, a geopolitical firestorm erupted between OPEC and non-OPEC producers, which led to a burgeoning oversupply of crude oil. Coupled together, these two events are resulting in a very imbalanced supply/demand scenario and a massive selloff in oil markets – Brent crude is down more than 50% from January highs – just two months ago. 

The shock of the oil market collapse is forcing global leaders to consider new ways to adapt to the needs and safety of their people, adjust business operations and models, and satisfy evolving customer demands so that they can ultimately return to stability, and even growth. At this moment, executives are prioritizing safety, business continuity and job security. Industry leaders are working quickly to mitigate risk, manage costs and preserve cash, and test technology capacity in order to manage remote workforces. At KPMG, we are talking with many of you as we work together to navigate this difficult time. 

Eventually, supply chains will start to move, travel restrictions will lift, and demand will come back. We’ll see a turning point and a shift to proactive planning when leaders begin to stress test internal operations, examine the agility of supply chains and upgrade technology so that when another unforeseen event arises, organizations will be even more resilient than they are today. Thankfully we have technological tools today that can transform the way corporates manage their operations which will prove to be the great differentiator for “crisis proofing” the organizations across the entire value chain. 

The energy industry, specifically, has proven time and again that it is incredibly resilient. So, let’s stay the course, work as partners, and weather this storm together.