2022 KPMG Inflation Survey: ENRC Report

Energy, natural resources, and chemicals companies in the United States are certainly feeling the pressure in parts of their business.

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Energy industry’s net zero transition remains on track through inflation

Energy, natural resources, and chemicals (ENRC) companies in the United States are certainly feeling the pressure in parts of their business, according to a KPMG survey. Differences among the oil and gas (O&G), power and utilities (P&U), and chemicals sectors likely impacted certain survey results. Higher oil and gas prices are a significant driver of inflation but a boon to an industry recovering from a downturn and looking to reduce debt.

 
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Survey highlights

  • 62% cite unforeseen geopolitical risks as a top organizational challenge in MANAGING impacts of inflation
  • 82% expect to raise prices by the rate of inflation (52%) or more (30%)
  • 72% envision passing on price increases in three to six months
  • 74% are looking at right-sizing staff as a means of offsetting the impact of inflation
  • Nearly 40% plan to allow all employees to work remotely to reduce real estate and related spending
  • 65% anticipate increasing their technology spend by 5% to 20% to mitigate inflationary impacts


Accelerating top-line growth
Despite falling consumer sentiment, 82% of companies expect to raise prices by at least the rate of inflation. At the same time, nearly 60% may look to develop new products at lower price points in an effort to maintain or increase customer wallet share.


Protecting the bottom line
In the face of wage inflation, companies are re-evaluating the right size, structure and location of their workforce. They are considering workforce reductions (48%), cuts in non-salary compensation (47%) and relocating staff to lower-cost regions (53%), while also exploring refinancing (54%).


Planning for exogenous factors
With unforeseen geopolitical risks leading the list of organizational challenges, companies are realizing that “dark swans” are lurking everywhere. They are factoring geopolitics into their risk planning, on-shoring or near-shoring more functions, and building resilience into their supply chain and foreign exchange processes.


Responding with technology
With headcount reductions and right-sizing programs looming, companies expect to counter the potential hit to productivity with technology. Among respondents, 65% expect to increase tech spending by 5% to 20%, with AI, machine learning, blockchain and cloud computing increasingly seen as inflation-fighting investments.

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Key Survey Findings

Responding with technology

       

Workforce reduction to manage inflation

Energy and chemicals companies are more likely to reduce their workforces to manage inflation, according to survey respondents, 60 percent compared to 48 percent across all industries.

  

Top Challenge in Managing

Other industries are in line with ENRC in naming geopolitics as the top challenge in managing inflation, suggesting that companies are baking this issue into their risk/inflation scenario planning. The five highest risks for the industry are foreseen geopolitical risks (63 percent), supply chain disruption (60 percent), increased cost of labor/wages (43 percent), increased cost of raw materials (35 percent), and predicting exchange rate fluctuation (28 percent).

   

Supply chain disruption & inflation

ENRC executives pointed to supply chain disruption as the second-biggest challenge managing their business through inflation, at a higher percentage (60 percent) than across all sectors (47 percent). Any hint of instability can have a significant impact on O&G global supply; the South China sea alone sees 30 percent of all crude oil transports cross its waters.

   

COVID-19 changed workforce dynamics

Prior to the pandemic, it was considered necessary for certain energy company functions to be on site. The survey results from ENRC executives now look similar to all industries, especially regarding workforce redistribution, more so than they would if COVID-19 hadn’t happened. Right-sizing staff—today (68 percent), right-sizing staff—over the long term (more than one year-62 percent), redistributing the workforce to lower-cost areas—today (47 percent), redistributing the workforce to lower-cost areas—over the long term (more than one year) (42 percent).


 

Responding with technology

    
 

       

Mitigating increased capital cost

The largest percentage of ENRC respondents said their companies are refinancing debt as a means of mitigating the increased cost of capital, 68 percent compared to 54 percent across all industries: Refinancing existing debt (68 percent), raising capital via share issuance (38 percent), paying down debt ahead of schedule (32 percent), increased deployment of cash on hand for operational or strategic spending (15 percent), and issuing shorter term debt (8 percent).

  

Input costs must decline

Nearly 70 percent of ENRC executives surveyed said that the Russia-Ukraine conflict has increased operational costs at least 10 percent, compared to approximately 60 percent across all industries that reported the same level of impact. More than half of all respondents have taken steps to increase the use of alternate sources of raw materials over the past 12 months. However, considerably more ENRC respondents (85 percent) report taking these actions, and 70 percent said say they plan to continue for at least the next year.

   

Capital investment will accelerate

Seventy-eight percent of all executives surveyed said they expect to accelerate CapEx between five percent and 15 percent over the next six to 12 months, regardless of economic growth. However, a greater percentage of ENRC executives, 87 percent, said their companies are looking to expand CapEx at that 5-to-15 percent rate.

    
 

      
 


Read the full 2022 KPMG Inflation Survey

From bottom line to top line, inflation is top of mind across all industries. The 2022 KPMG Inflation Survey captures a long-term view of how inflation is impacting strategic decisions and corporate behavior.

Full report


Our Team

Meet our trusted partners who can answer questions regarding inflation and help you plan for unpredictable factors.  

Angie Gildea

Angie Gildea

National Sector Leader – Energy, Natural Resources and Chemicals, KPMG in the US

+1 713-319-2295
Brad Stansberry

Brad Stansberry

Partner, Advisory, Finance Transformation, KPMG US

+1 214-840-6026

  

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