Economic studies


Central & Eastern Europe
Latin America
Mid-East & Turkey
Northern America
Western Europe
Change sector


  • New methods of financing that share risks between producers and investors
  • Efforts by oil companies to lower their breakeven point
  • Diversification of large companies
  • Renewable energies remain on a dynamic trend despite the crisis


  • High levels of debt, especially for companies exploiting non-conventional oils
  • Sharp drop in profitability due to the health crisis
  • High volatility of crude oil prices
  • Overcapacity of companies in the sector, in the oil and gas services segment
  • Strong pressure from environmental activists to reduce investments

Risk assessment

Risk Assessment

The unprecedented pandemic shock led to drastic lockdown measures that have affected economic activity. According to Coface, global GDP contracted by 3.5% in 2020 and should rebound by 5.6% in 2021. However, the vaccine rollout and the reopening of advanced economies are improving the global economic outlook and activity is set to increase in 2021. In this context, oil prices rebounded thanks to strengthened demand. Coface forecasts Brent crude oil prices to average USD 65 in 2021, up from USD 43 last year. This price recovery reverberates on the entire industry, with heterogeneous effects on upstream and downstream oil activities.

Although the extractive industry benefits from the price increases, downstream industries should suffer from the higher acquisition costs of crude oil. Furthermore, refineries are having to deal with new standards, particularly environmental ones, and a subdued demand relative to pre-crisis levels. Increased competition due to the emergence of new Chinese refineries could also narrow the industry margins. Refinery operations are not expected to fully recover before 2022, with disparities depending on geographical areas. The economic recovery depends both on countries' exposure to the virus and on government responses aimed at stimulating the economy. Moreover, one must acknowledge that the recovery programmes are part of governments' desire to foster a low-carbon economy, thereby promoting development of renewable energies, an orientation that was already being pushed before the COVID-19 crisis. Therefore, this questions the sustainability of the hydrocarbon sector, particularly in North America, where unconventional players must now demonstrate (with difficulty) that their activity remains viable, while operating in a region where the energy sector has been dynamic in recent years.

Notes for the reader
LNG: Liquified Natural Gas
Bcf/d : Billion cubic feet per day


Sector Economic Insights
COVID-19: a massive shock that is having a strong impact on an industry already weakened before the crisis

Lockdown measures, which remain (at least to some extent) in many countries, are affecting industrial activity and, above all, transport-based travel. The gradual reopening in some regions has not been sufficient to offset the negative impacts of the pandemic and the increasing number of cases caused by the virus’ new variants. Furthermore, these variants could impede on the pace of demand growth. The massive fall in international travel has drastically reduced the demand for kerosene, which, combined with lower car use, has led to a drop in fuel consumption with persistent effects in 2021. Surprisingly, some products have progressed in terms of demand, like naphtha, used to make plastics, and liquefied petroleum gas. Overall, according to the International Energy Agency (IEA), the demand for oil in 2021 should rebound by 5.4 million barrels per day (mb/d) in 2021 after contracting by 8.6 mb/d in 2020. The current IEA forecasts show that pre-crisis demand levels will be surpassed towards the end of 2022. On the supply side, the OPEC+ intends to increase its oil supply by 2 mb/d by the end of the year to match the recovery needs. The announcement has not triggered strong lasting effects on crude oil prices, but the fluctuations will remain highly sensitive to the evolution of the pandemic. More specifically, a slowdown in GDP growth could further threaten crude oil prices. Iran’s supply of oil may also affect the global supply and market prices, provided the country is allowed to sell its crude in USD.

A partial recovery for fossil fuels in all major markets worldwide

The Asian recovery in demand for oil is quite uneven and primarily driven by China. The Chinese manufacturing sector quickly rebounded due to the increased demand for its products. As a result, China’s need for oil and related products increased significantly. The V-shaped Chinese recovery is currently normalizing and its outlook for Q3 2021 could be affected by the resurgence of COVID-19 cases in some provinces. The virus variants are also slowing down the throughput of Chinese refineries, which had been increasing through 2020 and 2021. South-East Asian countries’ demand is pushed back as restrictions are tightened in response to the delta variant.

In Europe and in the U.S., vaccination programmes and easing of mobility restrictions contributed to the increased demand. A return of drastic health measures that would penalize economic activity cannot be ruled out completely because of the COVID-19 variants, which would put the entire upstream sector (exploration-production and oil-related industries in particular) in another round of hurt. As such, under the hypothesis that the pandemic remains contained, the U.S. Energy Information Administration expects a sustained consumption of fossil fuel products through 2021, especially that of gasoline in the U.S. (8.8 million b/d in 2021, 2020: 8.0), helped by rising employment and, above all, mobility.

Regarding liquefied natural gas (LNG), the COVID-19 crisis emphasised the problem of overcapacity that the sector has been facing for several years. However, it has since ended and LNG prices strongly recovered, reaching pre-pandemic highs. U.S. LNG exports strongly strengthened through the first half of 2021, averaging 9.6 Bcf/d, i.e. an increase of 42% relative to the same period of the previous year. China is on the path to becoming the first global LNG importer in 2021, surpassing Japan, the primary importer of the commodity for decades. Qatari and Australian LNG exports through 2021 proved quite resilient. Both countries were the primary exporters in the LNG market and the volume of LNG they trade is set to remain stable over the coming years. Qatar’s production capacity will be significantly increased thanks to the expected completion of the North Field East project in late 2025. 

Deterioration IN financial results

With the increase in commodity prices, oil and gas producers saw their margins recover from the 2020 collapse. Major European oil and gas companies’ total net income rebounded to pre-pandemic levels. The net debt (ratio of net debt to total assets) of every segment analysed by Coface has decreased from 22.4% in Q3 2020 to 21.30% in Q1 2021, thanks to strengthened oil prices and increased cash flows. The price recovery has heterogeneous effects on profitability. The upstream (pipelines, exploitation) activities benefit the most from higher oil prices and see their margins increase, while the downstream industry carries the cost increases that offset the positive effect of demand recovery.

The non-conventional oil universe in the United States is taking a cautious stance regarding financial behaviour, after years of indebtedness. Despite favourable price fluctuations, the focus in financial policy is dedicated at keeping capital expenditure low and output contained, favouring cash flow generation and shareholder payout. The Biden administration is expected to impose restrictions on oil production on federal land, as well as tougher regulations on emissions, which will affect adversely oil demand and impact the domestic oil industry.

Renewable energies expected to contribute to the reconfiguration of the sector in the near future

In line with the will of public opinion in a majority of countries, particularly in advanced economies, the transition to a low-carbon economy throughout the world, which is based in particular on energy transition, is challenging the fossil fuel industry. Stimulus plans in response to the COVID-19 crisis, which include environmental concerns, are expected to accelerate the reconfiguration of the sector, which had begun before the crisis. For instance, there are new regulations in the automotive sector in the main global markets (Asia, Europe, U.S.), whose players are developing models with a lower carbon footprint, as well as electric models, in order to avoid fines.

New Environmental, Social and Governance (ESG) standards exert additional pressure on oil and gas companies. Investors are increasingly more cautious towards the involvement of firms in the transition to carbon-neutrality and to the companies’ compliance to ESG norms. These changes could greatly affect the entire industry, increasing both capital and operating costs while also squeezing demand for oil products and their derivatives, in fine.

Ultimately, the drop in demand for plastic and the more systematic use of plastic recycling, thanks to changes in consumption habits and regulations (bottles marketed in the EU will have to contain at least 25% recycled plastic in 2025 and at least 30% in 2030), entails a drop in demand for refined oil (via naphtha).

While the development of renewable energies has slowed down because of the COVID-19 crisis, Coface expects the renewable energy segment to be more resilient than fossil fuels. Indeed, renewable energies have been growing in importance over the last 20 years, increasing from 21.8% of total global installed electrical capacity in 2000 to 34.7% in 2019, according to the International Renewable Energy Agency (IRENA). In 2020, over 80% of the added electricity capacity was renewable.



Last update : August 2021