The Experts at Deloitte gave us the 2020 Midyear Update for the Oil and Gas Industry:
2020 oil, gas, and chemical industry outlook
Walking the tightrope—vigilance required to keep moving forward in 2020
As we, once again, move from one year to the next, how do we assess the oil and gas and chemical
sectors’ performance in 2019 and its prospects for 2020? As always, there are headwinds and tailwinds,
risks and opportunities, uncertainties and foreseeable trends, but in this report we aim to take stock of
the main factors to watch for in 2020 across the diverse oil, gas, and chemical industry. Over the past
decade, we have seen the heights of bullish optimism and seemingly limitless investment during the
years of the $100 per barrel world, from 2011 to mid-2014, and the lows of the price crash and extended
oil downturn, from mid-2014 to 2017. Neither extreme seems in the cards for an imminent return as the
industry has learned valuable lessons from both episodes, but uncertainties are clearly still a challenge
to performance and investment.
As we evaluate the most prominent trends and issues for the oil and gas and chemical sectors in this
outlook, executives in these businesses seem keenly aware of wider macroeconomic and business
environmental risks, which seem to be gaining strength. Among these are:
- Weakening economic growth, not only in the United States but also in Europe and China;
- Ongoing, perhaps intensifying, trade tensions, which can create uncertainty, dampen growth,
and lead to modifications in long-established supply chains; and
- The many political risks, of course, including the US election cycle, the outcome of the Brexit
process in Europe, and tensions in the Middle East between multiple states and non-state
actors with different objectives.
And, while walking the tightrope across these shifting sands in 2020, fundamental changes in the longterm business environment could become more salient. So, attention to the coming disruptive forces
associated with this century’s energy transition and sustainability imperatives is increasingly crucial
alongside day-to-day positioning.
Chemicals and specialty materials sector
Looking at 2020 through the rear-view mirror
In Deloitte’s 2010 report, The decade ahead: Preparing for an unpredictable future in the global chemical industry, we laid out three scenarios of possible paths along which the global chemical industry might evolve by 2020. Out of these three, the “resilience” scenario most closely resembles what we
have witnessed during the last nine years. The “hits” were (1) the industry witnessing strong recovery, (2) governments guiding investments and national competitiveness, and (3) companies meeting increasingly stringent regulations, focusing on energy efficiency and fossil fuel alternatives. However, the “misses”
we didn’t clearly foresee were (1) the rise of the United States as a major low cost producer of base chemicals, (2) lower and more stable feedstock prices, and (3) the geopolitical rivalry between the United States and China.
But as it was in 2010, and so in 2019–2020, the fate of the global chemical industry remains inevitably tied to end-markets demand, price volatility of key feedstocks, trade and regulatory barriers, and sustainability. This is reflected in the latest readings of the Chemical Activity Barometer (CAB)—a leading indicator of macroeconomic activity—that show a declining trend on a year-over-year basis.7 Chemical sales are slowing down due to not only trade tensions between the United States and China but also mixed signals about domestic manufacturing activity. In fact, US industrial production has been on the decline for the past few months—a trend that will likely continue for the rest of 2019 and into 2020. This is also reflected in the chemical industry’s revenue and margin growth trends, which have dipped in the first half of 2019.
2020: Balancing the short- and long-term needs
How can company executives remain vigilant to the many risks and uncertainties clouding the outlook for 2020 while standing ready to embrace new opportunities for profitable growth in an evolving market landscape, which might look quite different in the next decade and thereafter, as disruptive forces accelerate? We see signs that many of the lessons from oil and gas of the large swings in the price
environment and from chemicals of market dislocations have been taken on board, and these industries, as a whole, are better equipped to face the future than they have been at any time in the past decade. While carefully building capabilities for the long-term future around the energy transition and the circular economy (and demonstrating these to the investor community and other stakeholders), financial discipline and prudent investment strategies should help stabilize performance and reassure financial markets in the near term.