Graphically Speaking

Slippery slope

Downstream oil and gas companies are staring at a downward trend, and they need to fix their supply chain

Published 3 years ago on Aug 25, 2020 1 minute Read

With the collapse in demand post COVID-19, the price of crude oil has taken a beating. Even though that benefit has not been passed on in India to the end-consumer, a larger story is unfolding behind the scenes — the rapidly changing ecosystem of downstream oil and gas companies in India.

According to a Boston Consulting Group report, in collaboration with Indian Oil Corporation, as oil demand in India collapsed by nearly 60% in April and May compared to last year, it exerted pressure on refiners’ margins causing significant disruption in the sector. Oil prices are expected to remain at around $30-$40/barrel through this year and the next, with global oil demand expected to drop by 8.1 million barrels per day.

While in the US, 17 smaller oil and gas producers have already filed for bankruptcy this year, in India, a survey conducted by the All India Manufacturers’ Organisation revealed that about 35% of MSMEs in the sector started winding up operations in May as they saw no chance of recovery after COVID-19 outbreak.

In India, the top three oil-marketing companies (Indian Oil, Bharat Petroleum and Hindustan Petroleum) are expected to cut cumulative capex by around 30% over FY21-FY22. All this, combined with climate change implications, clean energy transition, uncertain demand recovery and the largely unorganised warehousing and road transport system, is spelling trouble for the oil and gas supply chain.

The answer lies in building supply chains that are risk-resilient and cost-efficient, as per the report. It suggests the companies to — identify high risk components, diversify the geographic footprint of the supply chain asset base, invest in robust early warning systems, foster cross functional collaboration and help build resilience in business partners (dealers, transporters, suppliers). Only then, the report suggests, will the downstream companies witness an uptrend in growth once again.