For all the turbulence that the oil and gas sector has recently experienced, a period of prosperity and opportunity now beckons. In the aftermath of the COVID-19 pandemic, conditions are becoming ripe for a sizable oil price increase, with the coming two years set to witness this scenario unfold. Now that national vaccination programs are progressing, there is high potential to not only unlock substantial oil demand in key areas of the economy but also propel demand growth to the highest levels ever recorded — presenting National Oil Companies (NOCs) with an opportune moment to diversify and capitalize on their competitive advantages. As with any commodity, ensuring supply and demand remain balanced is essential for oil price stability. However, surging demands in due course will coincide with a supply shortfall created by producers that made economic slowdown-induced capital expenditure (CAPEX) cuts when prices dropped in 2020. Since then, prices have risen with economic activities resuming, and this trend is set to accelerate because of an emerging supply and demand imbalance. Looming Oil Boom Considerations With vaccination programs returning the world to some sense of normality, it is feasible that several emerging themes will drive the demand for oil, with reconfigured company supply chains, global economic recovery, and the travel industry's return among the most prominent. Considering the rapid development of the approaching oil price boom, it is probable that the next supercycle will transpire far quicker than those that happened previously. Such a rise will put pressure on suppliers, which will expand CAPEX to meet rising demand, and end-users, which will leverage efficiency and new technologies to mitigate oil prices and associated emissions. Although several factors could instigate when the forthcoming boom occurs and either curb or exacerbate future price rises, NOCs in the Middle East should take proactive action today to prepare for what awaits beyond the price increase of tomorrow. There are already examples of oil and gas companies pursuing such an agenda, with sustainable energy investments and energy transition considerations transpiring in the public domain. Visible examples are the Saudi Green initiative, which aims at generating 50% of the Kingdom's energy from renewables by 2030, and Neom's "The Line" with "zero cars, zero streets, and zero carbon emissions". Along a similar path, Oman in its Vision 2040 is stating the ambition of reaching up to 39% electricity generated by renewables. The upcoming oil boom, therefore, poses a great opportunity for regional NOCs and governments to fund the path towards energy transition and to accelerate sustainability targets by considering diversification of their ownership on oil & gas assets. Next Steps for Regional NOCs The approaching oil boom represents a valuable opportunity for Middle Eastern NOCs and economies to diversify oil and gas assets ownership and use the subsequent funds acquired to enhance their respective portfolios. Moreover, these same funds should also be utilized to progress energy transition road maps that countries are pursuing to ensure sustainability and future competitiveness. While oil and gas demands have subsided over time, regional NOCs have continuously benefitted from a substantial cost advantage over their global counterparts, and this same advantage should convert into the main driver that solidifies global competitiveness even after the coming period. It is important to note that safeguarding oil and gas assets viability in an increasingly sustainable landscape hinges on NOCs minimizing the environmental impact of their operations while strengthening their license to operate. With regards to upstream oil and gas, NOCs can direct their focus on embracing practices and processes that limit methane leakages during production. At the same time, they should prioritize digital technologies investment to enhance operational efficiency and lower expenditure. For NOCs aspiring to fundamentally transform their legacy business, digital is vital for elevating performance levels and entering new areas of value via innovative business models with regional NOCs leveraging data platforms for their operations. The use cases of implementing digital by Middle Eastern NOCs today are prime examples that emphasize not only the growing need to harness digital capabilities but also that success in this direction is possible through the correct approach. Such examples include the use of artificial intelligence (AI) and big data to enhance efficiencies, optimize performance, and harness value potential, and digital solutions to monitor and optimize operations remotely and implemented IT management to integrate and centralize asset information. As the world continues its resurgence following recent difficulties, national vaccination programs will be a key driver behind the looming boom in oil prices. Although it's unclear if this scenario will be short-lived or endure over an extended period, Middle Eastern producers will be obligated to implement a comprehensive strategy nonetheless, one that enables them to diversify and secure competitive advantages. In doing so, they will overcome risks related to higher prices, further positioning themselves for long-term sustainability and success in the post-pandemic, lower-carbon era. — Rizzi is managing director & partner at Boston Consulting Group (BCG) and Kyrilis is managing director & partner at Boston Consulting Group (BCG)
