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The COVID-19 pandemic has had an unprecedented impact on the US economy and the state of the chemical industry, which experienced a significant decline in demand over the past eight months.
While the industry was already facing cyclical challenges such as overcapacity, pricing pressures, and trade uncertainty before 2020, many post-pandemic changes have shown a structural or disruptive character. Chemical companies in the United States have responded to the crisis by focusing on operational efficiency, asset optimization, and cost management.
As the industry moves into 2021, the changed economic, social, environmental, and political expectations are expected to play an even greater role in shaping its future. To succeed in the shifting industry landscape of the chemical market, companies should consider implementing a series of targeted, strategic initiatives across major functional areas such as R&D and technology. Too much focus on the short term, however, could mean that companies end up neglecting long-term opportunities, including investing in innovation, emerging applications, and adopting new business models that generate sustained growth.
A critical aspect of dealing with this disruption in 2021 will be understanding which customer behaviors are temporary versus those that are permanent, as recovery will likely be uneven across end markets and geographies. Companies can address this uncertainty by revisiting their product portfolio and conducting robust scenario planning that includes the unknowns. In this chemical industry outlook, we see five trends emerging in the coming year.
Summary highlights of Deloitte’s 2021 Oil & Gas Industry Outlook include:
- Supply crunch on the horizon? Oil was the worst-performing commodity in 2020, behind even coal, and companies remain short of confidence and capital to invest. Consequently, 44% of executives expect the oil market to remain in balance and 33% expect a high risk of a new supply crunch over the next five years.
- Financial and portfolio outlook for US shale. Only 7 percent of executives said keeping a domestic shale-focused strategy would be the right choice for US shale operators. Decapitalization, especially of 5,500 drilled-but-uncompleted wells (DUCs), metadata analytics and a rigorous operational diagnosis could help keep the industry afloat.
- COVID-19 and the oil downturn have accelerated the energy transition. However, planning for a lower-carbon future won’t be easy. O&G companies may have a myriad of green portfolio options to select, but not every choice will likely be fiscally prudent or give consistent results over the years and across regions.
- Is natural gas out of gas? Interestingly, 58% of executives believe that gas will have an essential role in building a clean energy future while 42% expect a reduced and varied role due to the emergence of alternatives/renewables and regionalization of industries.
- Turbulence reaching down the value chain. Amidst dampened global demand and US shale production, US downstream and midstream companies face “overbuilding” concerns, and petrochemicals are being confronted by growing competition from mega downstream complexes in the Middle East and Asia.
- A new administration and clean energy. Possible policy changes to watch include methane restrictions, oil and gas leasing and permitting within federal areas, fuel-economy standards, and investment in building a nation-wide integrated zero-carbon value chain and infrastructure.
