How has the outbreak of COVID-19 impacted contractors in the Omani energy industry?
COVID-19 has impacted the oil and gas contracting industry in two main ways. In the first two months of 2020, the sector suffered from delays to the delivery of equipment and commodities primarily from China, the world's global supply base for contractors in the oil and gas field. Subsequently, supply-chain interruptions continued impacting on construction efforts, since the delayed equipment is the necessary glue that holds our projects together. This situation has generally continued, with a level of improvement as China emerged from the COVID-19 crisis, but in fact was then exacerbated by similar delays from other supply chain countries including Italy and India. Second, the outbreak of COVID-19 had a severe impact on oil and gas demand, pushing energy companies to drive down costs. From previous experiences, the market will likely see the residual impacts of the current lowering of the oil price situation for the next 18-24 months, whilst there are mixed views among many industry observers as to whether the recovery will follow a V- or U-type model. Whatever the form of recovery, adjusting will be paramount, which is why in the short run all players will need to incorporate digital communication practices to optimize and ensure business continuity. At the same time, larger enterprises, such as IOCs, will have to continue to diversify and accelerate their transition to renewable energy products, and smaller companies will also have to rapidly follow suit and diversify their businesses to survive.
What will be the medium-term outlook of the construction projects in the oil and gas field given the low oil price environment?
Since the last oil price slump in 2015/16, liquidity has been an issue across the Middle East, with many governments supporting their economies through injections from their sovereign wealth funds. In Oman, over the last year, there has been a tightening of available credit lines from all sources, which means companies with higher volumes of capital liquidity are better placed to engage in projects and contracts. Moreover, the fall in oil demand has pushed NOCs and IOCs worldwide to put projects on hold or defer them. Project prioritization seems to be the key, for example focusing on developments with a high near-term overall investment return in terms of product and/or financial revenues so that governments can take full advantage of enhanced production as and when the worldwide hydrocarbon market recovers.
How do you expect COVID-19 to impact the national employment strategy for oil and gas contractors?
Governments will likely learn lessons from the COVID-19 experience and adjust their national workforce strategy because of two concurrent trends. On the one hand, companies are completing projects, but there are no new projects and they are hence laying off employees, especially the less qualified, whilst cutting salaries, in pursuit of costs reduction, for those who remain employed. Although a number of lost jobs can be filled by the local national workforce, in some cases they may not have the necessary depth of experience to take full charge of the roles available, although alternatively on-the-job training opportunities may be possible in some examples. On the other hand, due to the current situation, even highly qualified public sector nationals with 25-plus years of experience are in some cases now moving into earlier retirement. These two trends may expand the employment challenge going forward and contribute to elevated unemployment levels, as has been suggested by a number of industry observers.
In the current macroeconomic environment, companies are forced to accelerate their adoption of innovation. What is your definition of innovation?
Innovation in the current environment equates to technology development and looking at different ways to execute projects from an efficiency and cost reduction perspective. It also means executing more efficiently through general digitization and related connected construction systems. Given the reduced margins and increased competition in the aftermath of COVID-19 within the Middle East, innovation will be increasingly aimed at driving costs down.