Natural gas remains essential to the global energy transition, according to most U.S. executives, but many see a reduced or evolving role as renewables gain and the energy transition accelerates.

That’s according to Deloitte, which recently issued its 2021 industry outlook after surveying a broad array of U.S. executives. Following the presidential election, the consultancy in November queried more than 350 executives in the energy, resources and industrials industries to get their take on the opportunities and the challenges for 2021.

Views were a bit murky because 2020 was a year like no other, and 2021 remains a bit of a mystery. Covid-19 has impacted all corners of the globe as consumption was decimated. Consumption is forecast to accelerate in 2021, but executives remained unsure about the pace.

The Lower 48 exploration and production (E&P) sector has fallen into an “altered landscape,” with the financial outlook and portfolio options now less certain, executives said.

Since Deloitte published its midyear outlook in July, the global economy and capital markets rebounded “faster than expected” during the third quarter, said Deloitte’s Duane Dickson, U.S. Oil, Gas & Chemicals leader. 

“However, the pace of recovery in the coming months remains highly uncertain as mounting Covid-19 cases amid winter conditions, especially in Europe and the United States, may trigger another round of shutdowns and restrictions.”

When economic activity normalizes depends on how the pandemic evolves and how soon vaccines reach the general public, he said. That likely could lead to a “muted business investment on the labor market and consumer spending” next year. 

Optimism On Natural Gas

For natural gas, about 58% said they believe the commodity remains key as operators position their portfolios for lower carbon resources. Another 42%, however, see a reduced or varied role as renewables markets strengthen and industries regionalize.

Oil demand in 2021 is expected to climb, but consumption is forecast to be lower than before the pandemic. Natural gas, meanwhile, “seems trapped” between operators’ “decarbonization strategy of focusing on low-carbon fuels and the broader impetus to replace gas with renewables for electricity generation,” according to Deloitte. 

“Other challenges include the ongoing problem of fugitive methane emissions associated with gas, as well as the growing electrification of the broader energy system.”

Across  the oil and gas (O&G) complex, look for the downturn to challenge not only demand but the size of the workforce. 

U.S. E&Ps, along with the oilfield services sector, recorded massive layoffs during 2020. That “heightened cyclicality” in the workforce will “continue to challenge the industry’s reputation as a reliable employer,” Dickson said. 

U.S. oil and gas operators “laid off about 14% of permanent employees in 2020, and our research shows that 70% of jobs lost during the pandemic may not come back by the end of 2021.”

‘Great Compression’

The energy sector is familiar with rollercoaster commodity cycles, but the 2020 downturn was unique.

“In fact, it’s the ‘great compression’ of the O&G industry,” said Dickson. “With the survival of many companies at risk, and the longer-term decline in petroleum demand, the next decade could look very different for the entire O&G value chain. 

“2021 will either be a leapfrog year or a test of endurance for many.” The traditional methods of production are evolving, which will determine the industry’s direction, “separating the pioneers from the followers.”

The Lower 48 operations are forecast to dramatically transform in the next few years in size and could be dominated by “data-driven” operators with integrated portfolios. The future of the U.S. shale industry specifically could “hinge on how successfully it can insert itself into a greener future,” according to Deloitte.

The outlook for oil remains tricky too. Oil was the worst performing commodity in 2020, even trailing coal. Executive teams remain “short of confidence and capital to invest.”

The vaulted Lower 48 basins have fallen from favor, according to the executives. Only 7% quizzed by the consultancy believe keeping a “domestic, shale-focused strategy” is going to be the “right choice” going forward.

Keeping the U.S. onshore afloat, said executives, will require decapitalization, particularly of the 5,500 DUCs, or drilled but uncompleted wells, along with metadata analytics and a “rigorous operational diagnosis.”

Across the energy landscape, the race to achieve lower carbon and net zero emissions moved front and center. 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.

In addition, the downstream and midstream sectors faced a reckoning in 2020 too, challenged by overbuilding as demand diminished. In addition, the petrochemical sector confronted “growing competition from mega downstream complexes in the Middle East and Asia.”

January will bring a wave of change in Washington, DC, too, as President-elect Biden ushers in an administration attuned to climate change and alternative energy. 

On the new administration’s radar are likely to be policy changes that include “methane restrictions, oil and gas leasing and permitting within federal areas, fuel-economy standards, and investment in building a nationwide integrated zero-carbon value chain and infrastructure.”

Don’t Mess With Texas

In another survey, the Texas Alliance of Energy Producers took the pulse of 160 O&G professionals between Nov. 9 and Nov. 25. A broad spectrum of the Texas industry was surveyed, led by independent producers (44%), energy service companies (13%) and professional services firms (16%). 

Three-quarters of the executives believe 2021 “will be better or about the same for the industry,” but they are concerned about more stringent federal oversight as a Democratic administration takes office. The overall view, however, was positive.

“Our industry is resilient, and the optimism reflected here shows that,” said Alliance President Jason Modglin. “Concerns about economic conditions and burdensome federal overreach are very real, but these results and comments demonstrate a determination to fight and persevere.”

The biggest macro-level concerns for 2021 voiced by the executives were the price of oil (59%), demand for oil and gas (47%) and federal overregulation (43%). The biggest “business challenges” were led by maintaining the operations (46-56%), also was the top priority overall (33%). Other challenges ahead were growing the business (34%) and lack of a budget (29%).

Independents chose increasing production as their No. 1 priority for 2021 (62%), while improving project margins” was tops for 30%.

“Despite the issues confronting the industry, 75% of respondents believe the industry will be better (44%) or about the same (31%) one year from now,” the Alliance noted. Regarding their business outlook for 2021, about 70% were neutral (38%) or positive (33%), while nearly one-third were negative.