Studi Economici


Central & Eastern Europe
Latin America
Mid-East & Turkey
Western Europe
Northern America
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 coronavirus pandemic led to drastic lockdown measures that have affected economic activity. Coface forecasts a 4.7% contraction in global GDP in 2020 and a 4.4% recovery in 2021, following global economic growth of 3.2% and 2.6% in 2018 and 2019, respectively. In this context, oil prices are facing a sharp contraction in demand: the price of crude oil fell by 74% year-on-year in April 2020. As such, Coface estimates the yearly averaged brent price for 2020 at USD 40 per barrel, a record low level since 2016. The price level is too low to enable exploration companies to generate significant cash flow. This is having repercussions on the entire industry, as capital expenditures are low, which destabilises oil-related companies that are already suffering from overcapacity. These financially weakened oil-related companies are among the most at risk in the sector.

Furthermore, refineries are having to deal with new standards, particularly environmental ones, while facing a contraction in demand. 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, it is important to note that the recovery programmes are part of the governments' desire to achieve a low-carbon economy, thereby promoting the development of renewable energies, an orientation already propelled before the COVID-19 crisis. Therefore, this calls into question 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

The first lockdown measures, which started in many countries in the first half of 2020, halted industrial activity and transport-based travel. The consumption of factories dropped, as they were no longer producing. Moreover, 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. Consumption of plastic products in the automotive and construction industries has declined because of the drop in activity in these sectors, particularly during Q2 2020. According to the International Energy Agency (IEA), the demand for oil in 2021 will be 3 billion barrels per day lower on average than in 2019. One the supply side, in December 2020, the OPEC+ countries agreed on cuts in oil production more limited than they were previously, from 7.7 million to 7.2 million barrels per day, as from January 2021. The resumption of economic activity following the lifting of lockdown measures has led to a rebound in the consumption of petroleum products. Nevertheless, the drastic drop of activity in the aviation sector is likely to continue to weigh on demand for oil products.

A difficult recovery for fossil fuels in all major markets worldwide

In Asia, the recovery has been underway since the second quarter of 2020, since China lifted its lockdown measures earlier than the Western economies for instance. In China, demand for oil rebounded in March and April. The throughput of Chinese refineries  gradually increased through 2020, reaching 13.3 million barrels per day, and is expected to reach 13.8 during 2021. In Europe, uncertainty is weighing more heavily on economic activity. Indeed, authorities enacted lockdowns at the end of 2020, which have put downward pressure on consumption of oil products. A return of drastic health measures that would penalise economic activity cannot be ruled out, which would put the entire upstream sector (exploration-production and oil-related industries in particular) in difficulty. Thus, despite an upturn in activity in June 2020, the level of refinery activity in 2020 and 2021 will remain below 2019 levels (-2.6 mb/d and -2.4 mb/d, respectively, according to the IEA).

In the Americas, where both the control of the pandemic and limitation of the number of cases per day have proven very difficult since the start of the health crisis, rising unemployment and uncertainty are weighing on purchasing and investment decisions. The pursuit of the economic recovery depends on the evolution of the pandemic in the United States. However, due to the resumption of contaminations, notably at the end of last year, and its consequences on the confidence of agents as well as economic activity, refinery activity is not expected to return to pre-crisis levels before 2022.

Regarding liquefied natural gas (LNG), the COVID-19 crisis and the drop in demand emphasised the problem of overcapacity that the sector has been facing for several years. Despite the crisis, Chinese demand is boosting LNG imports, which increased by 25.4% year-on-year in October 2020. Demand from Europe and China is recovering according to the U.S. Department of Energy, notably due to the arrival of winter in these regions. Thus, U.S. LNG exports are regaining strength: 7.2 Bcf/d at the end of October compared to 2.3 Bcf/d during September.

Deterioration of financial results

The profitability of the various segments in the sector declined overall between Q1 and Q2, quarter-on-quarter. While the profitability of exploration and production companies fell even faster in the third quarter of 2020 (-0.19% vs 5.47% in Q3 2019), the profitability of the other segments (Oil-related, Refining and Marketing, Pipelines) was already declining in 2019. The net debt (ratio of net debt to total assets) of every segment analysed by Coface has increased from 14.5% in Q2 to 17.5% in Q3 2020.

The non-conventional oil universe in the United States is struggling in particular, and is characterized by falling prices, declining revenues and investments, as well as deteriorating investor confidence. According to the Institute for Energy Economics and Financial Analysis (IEEFA), revenues in the sector fell by 64% compared to the previous quarter in Q2 2020. In response to this decline, companies in the sector have reduced their fixed capital investments by 45%. Whereas President Barack Obama had forced car manufacturers to reduce CO2 emissions by 5% per year, President Donald Trump lowered this level to 1.5% per year, a measure taken to promote the oil sector as a whole. Despite the deregulations that President Trump carried out during his term in office, the low demand has thwarted these granted benefits. Indeed, according to the August 2020 survey by the American law firm Haynes & Boone, the amount of total debt of companies in the oil sector has increased by 320% compared with 2019. For oil service companies, this increase is 98%. 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.

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.

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).



Last update : February 2021