The downturn in the U.S. energy sector caused by the Covid-19 pandemic is “truly like no other” as 70% of the jobs lost this year may not come back until the end of 2021, the Deloitte consultancy said Monday.

Lost jobs recovering by 2021

However, the economic devastation presents opportunities for the oil and gas industry to accelerate its transformation to cleaner energy and high technology, the report’s authors said.

“Disruption and technology have a record of creating jobs, not destroying them; along the way, they transform the entire way of working for an organization,” the authors said. “Companies and employees that look at the crisis through the lens of innovation and technology will likely be better prepared than others to take on new opportunities.”

About 107,000 people in the U.S. oil, natural gas and chemicals (OG&C) sector were laid off between March and August, “the fastest layoffs in the industry,” as a result of the global economic slowdown and the resulting crash in energy prices, they said. Even relatively stable sectors such as refining and chemicals reported combined layoffs of 35,000 in the period.

The U.S. OG&C industry employed about 1.49 million people in December before the pandemic, Deloitte said. In its “consensus” scenario of $45/bbl oil prices and $2.50/MMBtu natural gas prices, the sector would likely employ 1.41 million by the end of 2021, meaning that about 30% of the lost jobs would come back.

Under Deloitte’s “pessimistic” view of $35/bbl oil and $2/MMBtu gas, only about 3% of the lost jobs would come back by the end of 2021. In the “optimistic” scenario, 76% of the jobs would come back at $55/bbl oil and $3/MMBtu gas.

“The OG&C industry is in a great compression where companies’ room to maneuver is restricted by multidecade-long low prices, unforeseen demand destruction, and changes in end-use consumption due to mass telecommuting, mounting debt loads, and a renewed focus on health from Covid-19,” the authors said.

The energy sector is now the second-smallest segment in the S&P 500, with a share of only 2.5% at the end of August, according to Deloitte.

The sensitivity of OG&C employment to oil prices has increased significantly since 2014 because of the short-cycled investment and production profile of unconventionals, further challenging the industry’s reputation as a reliable, long-term employer, it said.

A $1.00 movement in oil prices now is equivalent to 3,000 U.S. exploration and production/offshore offshore jobs, compared with 1,500 similar jobs in the 1990s, the report said. Retaining top employees in an industry with a median age of more than 44 years is “of utmost concern for the industry,” the authors said.

‘Bright Spots’

Despite the gloomy near-term outlook, there are “four bright spots” for the industry’s future, the report said. The areas that present growth opportunities are transitioning to alternative energy, enhanced use of technology, redefining careers and improving organizational agility, Deloitte said.

Transportation combustion fuels account for about 80% of greenhouse emissions for the OG&C industry, the report said. With travel restrictions imposed by Covid-19, transportation-driven fuel demand fell 30% and global GHG emissions fell by 17% in the first half of this year, it added.

“The consequences of the pandemic have reinforced the call for long-term decarbonization and a solid energy transition,” the authors said.

Returns in the so-called green energy business are now “at a level playing field” with traditional returns of 6-8% in the OG&C sector, while the weighted cost of capital of 8-10% for an oil and gas company is twice that of top renewable companies, they said.

Only 1-2% of oil and gas capital expenditures are spent on new alternative energy projects, but “there is nearly unlimited scope for companies to transform their traditional hydrocarbon model,” the report said.

Some large companies have announced net-zero carbon emissions goals by 2050, with BP plc planning to reduce production by more than 40% by 2030 and increase its low-carbon investments ten-fold. French supermajor Total SE plans to allocate 10% of its research and development budget to carbon capture, utilization, and storage technologies to capture 5 million tons of carbon dioxide by 2030.

Basic methane abatement measures, such as leak detection and repair and device replacement, could lead to net savings of $2-4/MMBtu for companies, they added.

Digitializing operations and announcing net-zero plans could boost interest among college graduates in the OG&C sector, as the U.S. university graduates in courses such as petroleum and geological engineering fell by 15-21% from 2015 to 2019, the authors added.

Reimagining organizational structures could provide an important new way for companies to reduce costs, as efficiencies have seemingly plateaued after recent upstream cost-cutting measures, the authors said.

“Successful organizations of the future will make sustainable energy their core ‘work,’ elevate human-machine interactions, and reimagine their traditional ‘workforce’ model and ‘workplace’ culture,” the report said.