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What will 2021 hold for the energy industry?

By Andrew Bradshaw, Fifth Ring

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By Andrew Bradshaw, head of energy insight, Fifth Ring

Trillions of dollars of oil exploration is still on the cards, according to Andrew Bradshaw.
Trillions of dollars of oil exploration is still on the cards, according to Andrew Bradshaw.

If the last 12 months have taught us anything, it is that the only certainty is uncertainty.

That lesson has impacted every aspect of our daily lives recently and it will likely extend into our short-term future at least. Because the characteristics of the energy industry are so closely linked to our social behaviour, any changes in our lifestyle patterns can directly impact the direction the industry takes.

At this time of year, it is tempting to speculate on what we are likely to see in energy over the coming year. The fortunes of the industry have arguably never been more volatile than they are right now, which means it is extremely difficult to predict with any degree of certainty what the future will bring. Looking even one month ahead is a risky exercise: beyond that is even more challenging.

For example, with a barrel of Brent crude nicely placed in the mid $70s range a year ago amid confidence that it was on a gradual upward curve to the consensual comfort of $80, who could have predicted that just four months later it would crash to $26 per barrel, or that in the USA West Texas Intermediate crude (WTI) would slide into negative prices for the first time in history?

However, while accepting the unpredictability of the energy market as a huge caveat, there are some broad trends that we may see in 2021 and beyond.

In the oil sector, historic fears of supply exhaustion have been offset by the vast potential offered by US tight oil, while OPEC+ (the members of the Organization of Petroleum Exporting Countries and allies led by Russia) attempts to manage member production quotas. In short, the world has enough available oil right now.

In an effort to offset the impact of new waves of the Covid virus on transport and fuel costs, OPEC’s de facto leader, Saudi Arabia, agreed at the beginning of January to further reduce its production levels while allowing others including Russia a slight increase.

However, tensions remain within OPEC+, specifically between Saudi Arabia (whose current policy is focused on managing oil prices) and Russia (which is keen to grow its market share). Last year saw a dramatic spat between the two, which led to a market flood and price fall. The OPEC+ alliance is an uneasy one and will no doubt be tested again in 2021.

The shift to electrification will continue, with renewables grabbing the headlines.
The shift to electrification will continue, with renewables grabbing the headlines.

For oil, concerns are more related to long-term demand rather than supply as consumers consider alternative and renewable energy sources for power and transport.

While oil has started to rise again, new waves of the pandemic mean the first half of the year looks shaky, and it is unlikely prices will reach pre-pandemic levels until the end of 2021 at the earliest.

By contrast, the global drive towards renewable energy adoption will continue to increase. Around the world, governments are incorporating green initiatives into economic stimulus packages. Some two-thirds of the world’s economy by GDP has now committed to net-zero carbon emissions by 2060.

The spotlight will be very much on the UK and Scotland’s performance when Glasgow hosts the United Nations Climate Change Conference – known as COP26 – in November this year.

Growing urbanisation and concerns about air pollution and congestion are creating greater demand from consumers for countries to adopt a wider range of transport solutions, where conventional fuels such as gasoline and diesel are joined by renewable electric powered vehicles.

However, while renewable energy will continue to dominate the headlines in 2021, oil’s days are far from over. Demand may be in decline, but existing production levels are declining faster. There are concerns that a lack of investment today in developing supplies will lead to a significant shortfall in the next 20 years.

Oil and gas will continue to be an important part of the global energy mix, with several trillions of dollars of new investment required in future.

For established oil and gas companies, the above presents a trilemma. Should they continue to serve their existing markets exclusively and seek best in class status? Should they explore new geographies with their current offering? Or should they adapt and move into new verticals such as offshore wind? Companies from major operators to supply chain services are reviewing their business propositions.

Whichever direction they take, there will continue to be a high demand for energy in all its forms, and opportunities for those that can best support the needs of their chosen markets.

  • Andrew Bradshaw is head of energy insight at global corporate communications company Fifth Ring and is based at the company’s Inverness office. He is internationally recognised as one of the leading experts in energy public relations.

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