2021 NAPE Summit: Top 10 Energy Industry Trends

Opportune LLP

At the 2021 NAPE Summit, decision-makers, prospect generators, financiers, E&P operators, and service providers will finally return in person in Houston at the George R. Brown Center on August 18-20 (virtually from August 9-September 23) to crowd exhibition halls, network with familiar and new faces, pick up the latest “swag”, and strike business deals.

Now in its 28th year, the NAPE Summit and the Offshore Technology Conference (OTC) are joining forces the week of August 16-20 and giving attendees full access—in-person and online. In response to the growing trend of Environmental, Social, and Governance (ESG) trends, the NAPE Summit will feature a “Renewable Energy Pavilion” where participants will have the opportunity to discuss developments occurring in the renewables space and carbon management such as underground carbon capture and sequestration technologies, among other topics.

Below are 10 key energy industry themes that are sure to be topics of discussion among attendees at the NAPE Summit:

  1. E&Ps Are Showing Financial Discipline (For Now) – Oil and gas companies are exhibiting spending restraint in the face of strengthening commodity prices—at least for now—focusing more on variable dividends and share buybacks to lure back investors. While shale companies are showing financial restraint for now with tepid to flat output, some industry observers predict they could increase spending and output if commodity prices climb even further.
  2. Technological Innovations Gaining Traction – “Digital transformation” was the buzzword de jour well before the pandemic, but now it appears to be taking on a more significant meaning as energy companies grapple with hiring (and in some cases re-hiring) employees to fill labor gaps and modernize operations. The pandemic seems to have accelerated—not paused—long-term technology themes such as robotics, IoT, AI, Big Data, cloud computing, robotic process automation (RPA), and cybersecurity, all of which will continue to be of paramount importance as the energy industry looks to become more efficient.
  3. Addressing The Labor Gap – The oil and gas industry shed more than 100,000 jobs last year, according to a report by Rystad Energy. Some industry observers warn that more than half of the jobs lost in 2020 may not come back this year—or ever. In its report, Rystad noted that while the pandemic hasn’t yet run its course, there’s likely a rollover effect into this year and that staffing will likely take another hit.
  4. Oil Demand Is Rebounding – As states ease COVID-19 lockdown measures and vaccinations within the general population accelerate, data suggests that oil (U.S. and global) consumption is forecast to increase to pre-pandemic levels, and soon. According to the International Energy Agency’s (IEA) June Oil Market Report, global oil demand is set to return to pre-pandemic levels by the end of 2022, rising 5.4 million barrels per day (MMbbl/d) in 2021 and a further 3.1 MMbbl/d next year. Meanwhile, global oil supply is expected to grow at a faster rate in 2022, with the U.S. driving gains of 1.6 MMbbl/d.
  5. Encouraging Natural Gas Economics – U.S. dry gas production is forecast to average 92.6 billion cubic feet per day (Bcf/d) in 2021, according to the U.S. Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO) released on July 7, up by 1.3% from 2020, and then rise to 94.7 Bcf/d in 2022. Gas consumption is projected to decrease by 1.1% this year and then grow by 0.7% in 2022, the EIA noted. Most of the forecast decline in natural gas consumption this year is the result of less natural gas use in the electric power sector, the EIA noted, which it expects to continue to decline because of rising natural gas prices. Meanwhile, the U.S. saw a surge in exports of liquefied natural gas (LNG) in the first six months of 2021, averaging 9.6 Bcf/d—an increase of 42%, or 2.8 Bcf/d, compared with the same period in 2020, according to the EIA. U.S. LNG exports also increased in the first half of the year as international natural gas and LNG spot prices increased in Asia and Europe due to cold weather, according to the EIA. Rising global LNG demand once COVID-19 restrictions began to ease, as well as continuous unplanned outages at LNG export facilities in several countries (including Australia, Malaysia, Nigeria, Algeria, Norway, and Trinidad, and Tobago), also contributed to increased U.S. LNG exports, the EIA noted.
  6. Renewables Are Finding Their Place In The Energy Mix – Last year, the world added a record of more than 260 gigawatts (GW) of renewable electricity capacity, nearly 50% more than in 2019, with most of the growth coming from the U.S., according to the International Renewable Energy Agency (IRENA). The U.S. now generates almost 20% of its electricity from renewable sources such as wind, solar, and hydropower, while nuclear accounts for another roughly 20%. While it’s no secret that renewable energy sources have accelerated over the last few years, their growth trajectory faces some headwinds. Chief among them is that renewables like wind and solar don’t always provide adequate supply when needed due to their inherent intermittency. Additionally, they can often provide oversupply with insufficient energy storage solutions, which can strain the supply-demand balance equation.
  7. COVID-19 & Remote Work (Not Out Of The Words Yet) – More than 3.93 billion doses of the COVID-19 vaccine have been administered across 180 countries, according to data collected by Bloomberg. In the U.S., 343 million doses have been given so far. Despite the increase in vaccinations, however, concerns of variants of the coronavirus are spreading rapidly among both unvaccinated and vaccinated populations just as state and local economies have eased mask and social distancing measures from the initial 2020 outbreak. In turn, some employers have mandated that their employees return to offices to work while some have made decisions to either allow their employees to work remotely or have instituted a hybrid remote/in-office work approach. Either way, the pandemic has certainly complicated corporate decisions about whether to keep leasing expensive office space or be flexible with remote or hybrid work environments.
  8. Oil & Gas Prices Continue To Strengthen – U.S. benchmark West Texas Intermediate (WTI) crude oil prices have broken the $70/bbl level a few times this year, trapped between soft demand and rallying equity markets, while Henry Hub natural gas prices have touched $4/MMBtu. Since January, WTI crude oil and Henry Hub natural gas prices have increased more than 45% and 50%, respectively. In June, WTI crude prices averaged more than $70/bbl for the first time since October 2018. The EIA expects that through the end of 2022, WTI crude prices will remain above $60/bbl—a price that has signaled robust activity among U.S. operators in the past.
  9. M&A Activity, Consolidation Picking Up – After years of “lease and flip” and “growth at all costs” strategies in the upstream oil and gas sector, investors are now demanding moderate growth, more disciplined capital deployment, reduced debt loads, increased operational efficiencies, and an ability to generate free cash flow and dividends. So far in 2021, signs of a consolidation trend have begun to take shape and is one that will likely continue so long as commodity prices continue to improve. Upstream M&A recorded $33 billion from more than 40 deals with an announced value in Q2 of this year, including seven deals worth more than $1 billion each, according to Enverus. This is the highest quarterly value total since 2Q 2019 and is tied for the most deals greater than $1 billion since 2014. Compared to public company mergers focused on operational and G&A synergies, these deals have been less about cost-cutting and more about adding high-quality inventory. With private equity-sponsored E&Ps still looking for an exit plus public companies selling noncore assets, further acquisition opportunities should persist. The public consolidation story is also not finished although its pace has slowed.
  10. ESG & The Energy Transition – COVID-19 and the oil downturn in late 2019 to 2020 accelerated—not paused—long-term decarbonization trends as a few integrated energy companies like BP plc, Royal Dutch Shell, and TotalEnergies (formerly Total), to name a few, have announced net-zero emission targets, but commitments to eliminate Scope 3 emissions remain elusive. Carbon capture, utilization, and storage (CCUS) technologies are proving to be a useful solution for the oil and gas sector where emissions reduction is particularly expensive or impractical. ESG pressure is encouraging a broader array of energy companies to consider CCUS as part of the sustainability roadmap.

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Opportune LLP

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