The oil & gas and chemical industries are at an inflection point. For years, growth was a given, but a new era, one characterized by a structural decline in capital and operational spending, is starting to take shape. Recent trends of slowing oil demand growth, oversupplied markets, and shrinking chemical margins as shown in exhibit 1, paint a stark picture. In response, major operating companies across the upstream (such as Shell, Oxy, and BP), midstream (including TC Energy and Targa Resources), refining (for instance, Delek and Phillips 66), and petrochemicals (such as Shell and Air Products) sectors are making significant cuts to their capex. This is not a temporary dip. ADI’s outlooks indicate a structural decline in capex and opex across these value chains in most regions, as the industry shifts to a lower growth model.
Exhibit 1: Recent trends in oil & gas and chemicals industry
The slowdown in oil, gas, and chemicals growth significantly impacts the entire value chain. This includes OFSEs, EPCs, OEMs, consumables, and MROs. We anticipate a direct negative impact on OFSEs, EPCs, and OEMs as new investment declines and greenfield development dwindles. This shift also means fewer expansion projects at existing brownfield facilities.
Furthermore, a general market slowdown and demand destruction will lead to lower capacity utilization. This, coupled with a focus on cost reduction, will likely result in extended maintenance intervals. Such extensions will directly impact the revenue and margins for OFSEs and EPCs. A diminished focus on performance is expected to reduce the frequency of turnarounds and upgrades, further lowering demand for services traditionally offered by OFSEs and EPCs.
Growing digitization and the adoption of AI are set to automate many operations and maintenance tasks. This will likely extend unit performance and, consequently, lengthen maintenance intervals. Finally, a greater push towards renewables, such as solar, wind, geothermal, and nuclear, will divert investments away from traditional oil & gas and chemicals growth, exacerbating the decline. Exhibit 2 below summarizes these implications.
Exhibit 2: Impact of capex and opex reduction on the oil & gas and chemicals value chain
While all these implications are true for all the players in the value chain, the extent may vary. Some diverse players may show resilience to these evolving market conditions, but consolidation, restructuring, and business model innovation are anticipated across these segments. Some of the key questions that these players are asking are:
- How severe will capex and opex cuts be? Will they persist or is this just another cycle?
- Which segments, regions, and players will be the most impacted?
- What segments and regions will see some growth? Why?
- How should the supply chain and ecosystem prepare for this phase?
To answer these questions, ADI is launching a multi-client study, “Lower forever: Navigating a structural decline in oil & gas and chemicals growth”. This study provides the oil, gas, and chemicals industry with crucial insights. It helps operators, OFSEs, OEMs, EPCs, and MRO players understand the implications of slow capital and operational expenditure growth through 2050.
We welcome you to join this study. As a subscriber, you’ll have multiple options to customize your access to the study deliverables. These include a report of approximately 150 pages and a detailed data sheet. You’ll also get a workshop to share findings and discuss underlying assumptions. An annual subscription is available, offering four quarterly updates to the study. Download our study prospectus to learn more.
About ADI Analytics
ADI is a prestigious, boutique consulting firm specializing in oil and gas, energy transition, and chemicals since 2009. We bring deep expertise in a broad range of markets where we support Fortune 500, mid-sized and early-stage companies, and investors with consulting services, research reports, and data and analytics, with the goal of delivering actionable outcomes to help our clients achieve tangible results.
We also host the ADI Forum that brings c-suite executives together for meaningful dialogue and strategic insights across the oil & gas, energy transition, and chemicals value chains. Learn more about the ADI Forum.
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