A combination of global geo-political and economic factors produced excess supply and weakened demand, resulting in the collapse of benchmark crude oil prices from over $100 per barrel in 2014 to around $35 at the end of 2015. The value of the BrandZ™ Oil and Gas Top 10 declined 20 percent, following a 6 percent rise a year ago.
Under financial pressure, integrated oil companies cut capital spending, imposed layoffs and postponed projects. But they continued to pump, even storing excess inventory on offshore tankers to protect market share and to be poised for any market recovery. The majors also sold assets, in part to pay dividends expected by major shareholders such as pension funds.
The brands paid uncharacteristic attention to their downstream businesses. Shell operates 45,000 service stations worldwide, for example. BP aggressively expanded its service station convenience store business. Sinopec continued its efforts to leverage the more than 30,000 locations it operates throughout China. Because of low crude prices, the major brands enjoyed strong margins on their petrochemical products.
However, weakened demand hurt less diversified independent companies, including many U.S. shale gas producers, but even they sometimes kept pumping to generate the cash needed for servicing debt. The number of drilling rigs operating in the US dropped by over 50 percent to less than 500 in just a year, hurting many of the service companies that operate them.
The oil glut produced lower prices at the pump, which seemed to diminish public interest in clean energy alternatives. However, in part because 2015 was marked by oil and gas industry disruption and uncertainty of crude oil prices, it was also the year that the investment in renewables for power generation exceeded the investment in hydrocarbons.
The international community reinvigorated the conversation around climate change and provided new clarity about the future of energy. A historic accord reached at the Paris Climate Change Conference made reduction of carbon emission a goal of the international community, with progress to be measured every five years.
Tilting to gas
Even before low crude oil prices disrupted the market, multinational brands began to shift toward a greater focus on natural gas. Shell has already pivoted to natural gas and aims to become an integrated natural gas company from exploration to delivery. In one of the few acquisitions during this period of low prices, Shell purchased BG, a major liquefied natural gas producer, formerly known as British Gas, which owns assets in Africa and other regions. Chevron has a large gas exploration project call Gorgon.
Off Australia’s western coast, Chevron’s Gorgon Project began producing liquefied natural gas (LNG) as part of the brand’s strategy to become a major LNG producer by 2020. The joint venture Gorgon Project, which includes ExxonMobil and Shell among its partners, is geographically well located to supply growing energy needs in Asia.
ExxonMobil expects a 25 percent rise in the global demand for energy between 2014 and 2040, driven especially by the major developing economies. Oil will remain an important energy source, ExxonMobil predicts, but 40 percent of projected growth in demand through 2040 will be met with natural gas. Exxon Mobile remained number one in brand value based on its financial size, market capitalization and relatively low level of debt.
The major brands face myriad issues in the transition to gas. For example, gas and oil prices work differently; there is no single global price for gas as there is for oil. Historically, gas was priced regionally, because to be economical it needed to be produced locally. The advent of LNG enables gas to be transported in liquid form by tanker; this changes the regionally based economics.
The major energy companies have been revising marketing, advertising and local public relations to sustain brand clarity, strength and corporate reputation as they navigate through the market disruption caused by low oil prices and transition to a heavier reliance on gas. Generally, the majors have been repositioning their communications away from focusing on oil and gas toward asserting leadership in energy, technology and innovation. Often the message is conveyed with emotional ads using company employees that give the brand a human face and relatable personality.
Shell launched a “Welcome to Shell” campaign in Malaysia, the Netherlands and Turkey. Aimed at retail customers, the campaign promises to deliver a high level of hospitality with upgraded facilities and convenience foods and beverages. As part of its corporate campaigned called “Make the Future”, Shell demonstrated the power of an innovative alternative power source, the footsteps of children on a specially wired football pitch, which created the electricity needed to flood their field with light.
An emotional ExxonMobil Super Bowl ad illustrated the impact of natural gas to create electricity with lower carbon emissions. Called “Lights Across America,” it opened with an image of a lighthouse illuminating a coastline and continued with a series of images of lights going on in an office building, a bedroom, a diner, and at a ball field where the crack of a bat against a ball led to this voice over: “You may not even think about the energy that lights up your world. But we do.”
With a campaign called “Doers Doing”, Chevron talked about America as a land of doers, capable of sending rockets to the moon, with all these impressive initiatives dependent on reliable sources of energy. BP, having settled most litigation that followed the 2010 Gulf of Mexico oil spill, shifted attention to its retail business with a campaign promoting a cleaner fuel containing an additive called Invigorate. Each spot followed a traveler on an important journey and ended with the line, “You have places to go. Let us worry about getting you there.”
Geopolitics complicate recovery
Predictions varied about how and when oil prices would recover, but there was little dispute about the factors that created the massive disconnect between supply and demand that caused the drop in oil prices.
Demand weakened primarily because the growth rates of the major developing economies, Brazil, China and India, slowed substantially, and the U.S., formerly an oil importer, became energy self-sufficient with the rapid development of shale gas. In fact, with the development of new facilities, the U.S. was set to become a net natural gas exporter.
Some countries with state-owned oil companies continued to export at high levels because their economies and social stability depended on the oil revenue. The state-owned companies typically operate with lower cost structures that enable them to achieve profitability even at low per-barrel prices. Scandals surrounding Brazil’s state oil company, Petrobras, contributed to the government’s instability.
Meanwhile, Russia’s Gazprom attempted to assert itself in Europe, even as sanctions against Russia, because of the incursion into Ukraine, blocked collaborations between western and Russian brands. Iran increased oil exports with the removal sanctions after the nuclear weapons deal. The U.S. repealed a 40-year-old ban on exporting crude oil. For environmental reasons, the Obama administration rejected the Keystone pipeline project to flow oil from the Canada tar sands for export through US ports on the Gulf of Mexico.
Brand Building Action Points1. Engage consumers in the brand conversation.
The role of the consumer as a stakeholder in the corporate brand has become much more valuable. Do not limit the conversation to location openings and coupons. In such a highly regulated industry it is important to remember that consumers influence regulators and the media, and they have a voice on social media.
2. Prepare consumers for market volatility.
Be prepared for a bumpy recovery, with shocks when the price suddenly rises or falls sharply, surprising consumers and having implications for trust because the public generally think that the oil and gas brands have more control over prices than they do.
3. Create networks of friends and advocates.
Advocates can help educate others about complicated energy issues and engage in an informed way in the public debate around energy issues. The rational middle and the contextualized conversation are important, and brands need to find other voices that influence the marketplace.
4. Counter the image of oil and gas as a dinosaur industry, literally.
Focus on the brand’s role in developing emerging technologies, such as battery storage, which will produce the cleaner energies required for people to live better lives in all parts of the world.
5. Invest in the brand.
Cut capital investment. Reduce the cost base. But protect the brand. A strong brand helps gain the critically important license to operate. That is a major return on investment, considering that spending on brand, relative to spending on just about anything else, looks pretty small on the balance sheet.