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Natural Gas remains essential to Energy Transition – Deloitte

Natural-Gas-remains-essential-to-Energy-Transition-Deloitte

According to Deloitte’s 2021 industry outlook, natural gas will remain an essential component of the global energy transition. However, this will depend on the evolving and increasing role of renewables in such transformation.

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Natural gas: essential to the energy transition?

Following the November presidential election, Deloitte surveyed several U.S. industry executives, querying more than 350 of them in the energy, resources, and industrials industries on their sectors’ challenges and opportunities for 2021.

About 58% believe natural gas will remain critical as companies move their portfolios to lower carbon projects. However, another 42% see a reduced role since renewables are strengthening and regionalizing each time more.  

Natural gas demand “seems trapped” with respect to oil.  According to Deloitte, several operators’ decarbonization strategies seem to be favoring renewables over gas considerably. Methane emissions associated with this commodity and the growing electrification of the broader energy system are some of the reasons behind this trend.

Another challenge for the natural gas’ transition effort is its workforce decrease due to the pandemic. U.S. E&Ps, along with the oilfield services sector, recorded massive layoffs during 2020. This will “continue to challenge the industry’s reputation as a reliable employer,” Deloitte’s report points out.  

Overall, U.S. oil and gas operators laid off about 14% of permanent employees in 2020. The survey shows that 70% of those lost jobs may not come back by the end of 2021.

In this regard, the pace of recovery in the coming months remains highly uncertain. Mounting Covid-19 cases in Europe and the U.S. may trigger another round of shutdowns and even stricter restrictions.

The Great Compression

As some energy industry executives pointed out, the energy sector is quite familiar with rollercoaster commodity cycles. However, 2020 was unique.

According to several industry people, the oil and gas industry is experiencing what they’ve called the ‘great compression.’ With a longer-term decline in petroleum demand, the next decade could look very different for the entire O&G value chain. 

The Lower 48 exploration and drilling operations are forecast, according to Deloitte, to transform in the next few years dramatically. The outlook for oil remains difficult too. Oil was the worst-performing commodity in 2020, even trailing coal.

The race to achieve lower carbon and net zero emissions moved front and center across the energy landscape. Planning for a lower-carbon future, however, won’t be easy.

Operators have myriad green portfolio options, “but not every choice will likely be fiscally prudent or give consistent results over the years and across regions,” according to Deloitte.

The downstream and midstream sectors faced a reckoning in 2020, too, challenged by overbuilding as demand diminished.

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