COVID-19 And Oil Price Catastrophes: How Can Industries Jointly Build Resilience?

Leading industrialists often learn their trade in the school of hard knocks by forging a quality that is emblematic of doing business in the 21^st century – resilience.

Nowhere is this more so than in the oil and gas industry, a sector with broad shoulders whose genetic code is hardwired with a capacity to take it on the chin.

It’s not difficult to find examples of how this sector has rebounded against the odds: the transformative crises of the 1970s, the price slumps of 1990 and 2008 – and, now, the near-simultaneous shocks of plummeting demand from the COVID-19 virus and crashing prices.

This sector’s global importance means these latest shocks are bad news for all of us, and recovery will not be easy.

My colleague, Muqsit Ashraf, who leads Accenture’s energy practice, and his team noted in a recent report that we are in for a turbulent 2020 and a lukewarm 2021 in which commodity markets will be under pressure. The World Trade Organization predicts global trade will plunge by up to a third this year.

When commodity markets are under pressure and export earnings plummet, everyone suffers.

Alongside energy companies, every industry has been hard hit, setting the stage for a global recession. In Paris, where I am based, we see Europe’s major economies grinding to a halt. The European Union predicts a deep downturn across the continent.

Lessons

Lessons will be learned from such unprecedented shocks – starting with crisis management. Attempting to ride out the downturn will not be an option and every industry will need to strengthen its resilience and reinvent itself, in one way or another – not only to manage shocks better, but to hit the ground running once the global economy stabilizes.

Within the oil and gas industry, we see the need for structural changes to build long-term resilience and thrive in the next upturn. This will include a laser-like focus on enhancing competitiveness by zero-basing cost and spending, rigorously assessing the portfolio, rethinking the role of the ecosystem in unleashing trapped value, and optimizing value across the expanded chain.

It will also include accelerating the scaling of digital programs to drive resilience through reimagined ways of working, remote and connected operations, and end-to-end supply chain visibility and management. Last but not least, oil companies will need to recalibrate their decarbonization journey – the urge to defer a transition to low-carbon, and increasingly competitive, sources of energy may be there in a tough and low commodity price environment, but that has to be balanced with the imperative of driving sustainability and diversifying the portfolio to blunt future volatility of commodity markets.

Other industries taking similar actions – from slashing costs to putting business continuity and cash-flow to rigorous stress tests – can also learn from their peers that now is the time to team up, just as Apple and Google did to help reduce the spread of the coronavirus with contact tracing.

For example, the automotive industry’s “Keep America Rolling” incentive program spearheaded by GM after 9/11 galvanized government and industry leaders in 2001 to kick start a traumatized economy, by reassuring nervous consumers while providing new production incentives for manufacturers.

The retail industry learned from the massive fallout of 2009 that recovery resides in a renewed focus on the consumer, being open to new ideas, international growth and embracing online shopping.

And the travel industry showed after the financial crisis how a focus on innovation – online bookings, emerging market outbound travel, and startup markets like apartment sharing – enabled it to weather the storm.

Industries also cannot afford to overlook the future impact of COVID-19 on how people behave – perhaps the most important lesson we can learn.

We should expect five major changes that will have profound implications for all organizations, according to a new Accenture Interactive report.

For starters, the erosion of confidence as people struggle with the new, harsh reality of an invisible disease will make trust more important than ever. As a result, companies will need to build confidence through every channel.

Second, as I work from home in Paris I’m reminded that just about anything can be done virtually. But only the companies that test and explore all the associated creative possibilities will be the winners online. The Franco-German Doctolib is a great example, rapidly becoming the leading cloud medical service. France’s GoTouchVR is another, providing cutting-edge virtual reality training across several industries.

Third, watch for a ‘health economy’ to emerge in which health should be considered in every experience. This has particular implications for industries with operational risk such as energy, chemicals, metals and mining – as well as traditional manufacturing and processing sectors.

Fourth, the home will become the epicenter of life and experience due to self-isolation. For some industries, this will be an opportunity for new services, from entertainment to the Internet of Things.

Finally, watch for more top-down control as governments learn that smart, timely interventions make all the difference in safeguarding human capital and that partnering with industry is the key to confronting crises. We can also expect pioneering collaborations – like the World Health Organization’s partnership with the global gaming industry to warn millions about COVID-19.

Looking ahead

The current situation may accelerate the need for the oil and gas industry to reinvent itself and build long-term resilience, by implementing structural changes, scaling digital programs and pivoting to new revenue streams. This response also applies to almost all industries, as the double demand and supply shocks hit, albeit at a different pace, many businesses in both the B2B or B2C spaces.

What the oil and gas sector teaches us above all else is that the most important lessons are shaped by guiding principles, and if there is one guiding principle threaded throughout this industry’s history of confronting crises, it is this: we are all in it together.

Resilience, and hence recovery, are built upon opening our eyes to what we can learn across sectoral boundaries, and also upon collaboration – between governments and businesses, companies and supplier ecosystems, and even competitors in some instances. 

Every leader, in both the public and private sectors, has an important role to play in mitigating shock, and their roles become even more important during the aftermath of the pandemic. Clearly, closing borders for business and protectionism are not the best way to achieve resilience. As European Commission president Ursula von der Leyen says, “A crisis without borders cannot be resolved by putting barriers between us.” Her comments will resonate in debates seeking to reassess globalization in the post-Covid-19 world, underlining the role that global trade will undoubtedly still play in fostering innovation and collaboration.

Just as sharing ideas is helping scientists find solutions to the coronavirus, working together and learning from each other will build mutual resilience and empower industries to engineer faster economic recovery than if they act alone.