That being said, many companies in the industry are expected to reinvent themselves as investors may become reluctant to dedicate capital to an industry that's constantly facing outside pressure from governments around the world.
Here's what's expected for the industry in 2022 and some future trends to keep an eye on.
Demand Will Still Be Strong
So much of the discussion around the energy sector is on renewables. Many countries are putting into place mandatory moves away from fossil fuels to reduce emissions.
At the same time, the demand for oil and natural gas will remain strong in 2022 and beyond. It's going to take time -- and lots of it -- for the world to move away from fossil fuels. In the meantime, the demand for oil and gas is likely to rise.
For economies to grow, they need oil and natural gas, because renewable energies aren't prolific or affordable yet.
As the world continues to recover from the COVID-19 pandemic, the need for affordable and reliable energy is accentuated. That affordability and reliability currently comes from oil and gas.
The Response to Changing Regulations Will Prove Critical
There's no denying that oil and gas companies face increasing pressure from governments to convert to renewable energies and reduce emissions. But, of course, this is nothing new to energy companies, which constantly face pressure from outside forces.
Yet, this time seems different from others in the past. How energy companies respond to this pressure known as ESG -- environmental, social, and governance -- will determine how successful they are for the long term.
Some oil and gas companies are viewing this ESG as a business opportunity. They're adjusting to using modern technology to collect and report carbon data that they can then monetize and trade via carbon credits. At the same time, they're investing in research and development projects centered around alternative energy that doesn't rely on carbon -- sources such as geothermal, solar, hydrogen, and wind energy.
In fact, in just the last three years, oil and gas companies have invested $10 billion in projects related to renewable energy.
Diversification Will Balance Budgets
The outside pressure to decarbonize will force many oil and gas companies to re-examine their balance sheets and diversify their business practices. This will start in earnest in 2022 for any companies that haven't already begun the process.
Many experts forecast that the oil demand will drop over the next five years, even as travel picks up again once the pandemic ends. So companies need to plan for that by adjusting their approach.
By diversifying the assets they hold in their portfolios and potentially divesting in some of their fossil fuels, they'll be investing in transitioning to renewable energy.
New Investments Will Take Capital
Ferrari Energy explains that all of this investment in renewable energy and a potential changing energy landscape will take capital. Therefore, those companies that have a healthy balance sheet and access to that capital are the ones that are likely to emerge in the industry going forward.
Companies are likely preparing their financial portfolio to look as attractive to investors as possible while at the same time planning for some investors to be wary of a complete overhaul to their business practices.