OPINION: Covid-19, the oil price crash and energy transition — three factors currently laying waste to an oil and gas sector that was already on its knees following the 2014 collapse in commodity prices.

Such is the scale of the expected destruction that some industry veterans are beginning to wonder if the upstream and midstream business model that has been around for at least 60 years is forlornly raging against the dying of the light.

At its most basic level, this model sees small companies picking up exploration acreage, farming out to larger companies with money to drill and which then bring in bigger brethren with deeper pockets to develop, so feeding the oil and gas supply chain.

But if companies do not want to explore for new oil because demand is falling, then the minnows will be unable to attract partners — eventually going out of business.

Mid-sized players could be next to go to the wall because they do not have enough cash to cover their debt.

Which leaves the supermajors and state-owned players as, potentially, the last ones standing.

The industry was rocked by the 2014 price crash, but cautious optimism was building, despite pressures from investors and activists to reduce carbon emissions to help address climate change.

In 2020, the Covid-19 lockdown in China and other Asian economies hit oil demand and prices fell.

Things got worse when Saudi Arabia's Crown Prince Mohammed bin Salman decided to pump at capacity in an oil-price war with Russia, causing prices to tank even further.

Riyadh’s move came just when the major economies of the US and Europe went into a tailspin as they finally reacted to the severe nature of the coronavirus.

A market source in Mozambique tells Upstream “the next few months are going to be absolute chaos,” while a North Sea watcher reckons the subsea market “is in a state of disintegration”, and a London-based investor says “the oil and gas industry is toxic.”

Are Covid-19, the Crown Prince and renewables the harbingers of doom for the industry as we know it?

The jury is out, but the omens have rarely been worse.

(This is an Upstream opinion article.)