RESEARCH REPORT

In brief

In brief

  • The oil and gas (O&G) downstream market is facing an unprecedented one-two punch—a parallel demand contraction and a concurrent ramp-up in supply.
  • Recent events are shaking out as perhaps the most disruptive market in the history of the industry.
  • Accenture shares crucial steps the oil and gas downstream market can take to navigate the current situation and thrive in the future.


While product prices have dropped and inventories have risen, the high level of uncertainty about the future that pervades the industry shows no signs of abating.

Typically, downstream players enjoy an initial margin windfall as crude prices drop faster than product prices. However, such windfalls tend to be short-lived. In fact, as economic activities grind to a halt, the demand effect drives overall refining margins—and perhaps retail margins—down.

Deteriorating demand and profit margins for fuels produced at refineries—including aviation and motor fuels—are resulting into a reduction in operations. These reductions range from cutting refinery runs, to closing units, to completely shutting down refineries.

The conflating factors at hand are increasing the pressure on refiners’ balance sheets, currently strained from a low-margin business environment.

The effects of demand destruction, among other factors, began emerging as early as the first quarter of 2020 (Figure 1).

The effects of demand destruction, among other factors, began emerging as early as the first quarter of 2020


Thriving vs. surviving

Traditional playbooks simply won’t suffice for navigating the current situation and thriving in the future.

Plans from old playbooks can serve as a useful starting point, particularly in terms of emergency response and early cost-cutting, but leaders also need to:

  • Prepare for more extreme operational scenarios with significant volatility
  • Increase levels of optionality while cutting down costs
  • Introduce hyper-localized action plans
  • Reduce response times
  • Provide emotional support to employees and other key stakeholders

While the industry has reacted by focusing on immediate continuity needs such as safety of operations, it must now address several critical issues, particularly around liquidity, resilience and going on the offensive, while transforming the way they lead and manage talent (Figure 2).

1. Continuity

Ensure continuity in extreme cases of demand destruction and employee/vendor shortages

2. Resilience

Prepare for the inevitable future product demand by reducing costs, enhancing optionality across the value chain, and protecting and enhancing margins

3. Go on the offense

Think about how to position for leadership post the crisis by focusing on customers, products and the company’s footprint

4. Talent and leadership

Communicate with compassion and confidence, build trust and care about employees’ work problems and households

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"Executives need a flexible and holistic playbook in order to navigate the months ahead of the one-two punch and to devise strategies that will take them from the now to the next."

— Pedro Caruso, Managing Director – Accenture Strategy, Energy

This is the time

While the long-term effects of the one-two punch event on the downstream market are unknown, it is still important to have a view of the mid- and long-term future while taking a proactive stance. It is fair to expect that the one-two punch will accelerate the pace of already-existing trends such as shifts in demand patterns, the move to customer-centric models and the decarbonization of the energy ecosystem.

The shakeout of these trends will vary greatly depending on timing, location and other factors. Understanding the nuances of these trends will influence whether the decisions in the next weeks and months will have been correct or not.

In challenging times, it is not uncommon for companies—entire industries, in fact—to become so caught up in devising ways to address a crisis they miss opportunities. Searching endlessly to find a perfect solution is not an option. This is the time to act swiftly and flexibly.

Pedro Caruso

Managing Director – Strategy & Consulting, Energy


Aleek Datta

Managing Director – Strategy & Consulting, Energy


Ashley-Rachelle Horstman

Managing Director – Strategy & Consulting, Energy

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