How Digitization Lowers Oil & Gas Industry Break Even Cost

Abstract

The Oil&Gas industry has experienced three price crises over the past twelve years. Swings in the key variables of politics, economy and technology affect supply and demand dynamics and consequently oil prices. The rise of unconventional sources brought the industry into a recurrent surplus of supply, putting pressure on prices and the combination of a supply shock, shortage of storage and an unprecedent demand drop brought prices to a 30-years low in April 2020. Although volatile oil prices make it challenging for oil companies to manage their markets, the silver lining in low oil prices is that it forced the industry to focus on rendering their internal operations more efficient. O&G producers cut their costs dramatically to remain profitable. The industry embarked on an optimization path and consequently accelerated the adoption of digital transformation. The COVID-19 crisis along with increasing societal pressure has only been a catalyzer to this digital transformation, unlocking significant operational improvements and reducing carbon emissions. According to the latest Rystad Energy analysis average breakeven price dropped 35% between 2014 and 2018, and an additional 10% over the last 2 years, to a $50 breakeven price per barrel.