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Turmoil & transformation: outlook for the oil and gas industry
The oil and gas industry is doubling down on transformational green investments, and confidence in the MENA region, while considerably reduced from 2020, is higher than elsewhere. These are some of the main conclusions of a newly released report from DNV GL.
THE OIL AND gas industry expects to boost investment in the energy systems of the future this year, as companies seek to transform for the long term, according to Turmoil and Transformation: The outlook for the oil and gas industry in 2021.
The report suggests priorities are shifting as investors reassess the risks of financing oil and gas projects, and as governments and industry pour billions into green recovery strategies following the Covid-19 pandemic. The research is based on a survey of more than 1,000 senior oil and gas professionals and in-depth interviews with industry executives.
Change in the energy mix
A record two-thirds (66%) of senior oil and gas professionals report that their organisation is actively adapting to a less carbon-intensive energy mix in 2021, up from just 44% in 2018. Some 57% plan to increase investment in renewables, up from 44% last year, while half (48%) expect to increase investment in green or decarbonised gas. BP, for example, aims to have 50GW of renewable generating capacity by 2030 – 20 times its current level –while cutting oil and gas production by 40% over the same period.
Just a fifth (21%) say they will increase investment in oil projects in 2021, as the sector increasingly comes to terms with the notion that the world’s demand for oil has peaked or will peak in the short to medium term. Expectations for an increase in natural gas investment remain steady at 37%.
Respondents in the Middle East and North Africa are more likely than the global sample to say their organisation will be increasing investment in oil projects/portfolios in 2021 (28%), and significantly less likely to be investing in renewable or green/decarbonised gas projects. Nevertheless, there has been a significant jump in those respondents in the region reporting that they will be increasingly focused on opportunities outside of oil and gas – at 51% compared with 33% in 2020. A whopping 72% think that hydrogen will be a significant part of the energy mix by 2030, and 73% believe that carbon capture and storage will become a significant commercial opportunity for the oil and gas industry by 2030 – higher than the global average of 68%. This can be seen as acknowledgement of the contribution CCUS can play in maintaining licence to operate, as well as of the commercial opportunity. “Net-zero climate policies began to proliferate in 2020, from Europe to China, and made it onto the table in the USA. Long term, net zero policies have the potential to drive deep decarbonisation of the world’s energy system,
and they are already changing the direction of the oil and gas industry,” says Hans Kristian Danielsen, vice president, DNV GL.
The oil and gas industry is moving through its third major downturn in 12 years, but the outlook for 2021 is influenced by the possibility that this downturn may be different from those of the past. Perhaps the most significant difference for the industry for 2021, is the shift in capital away from fossil fuels.
“The financial markets – through the effects of the Covid-19 pandemic – have seen what peak oil demand could look like, and are increasingly factoring in changing sentiment in society towards a decarbonised future,” said Danielsen. “Decarbonisation has moved from something on the horizon to an immediate priority, and there are signs that our sector may invest to transform rather than cut its way out of the present crisis,” he adds.
The majority of senior oil and gas professionals expect these shifts in investment will lead to a wider reshaping of the industry. Eight in 10 (78%) believe there will be increased consolidation in the year ahead, up from 64% one year ago. Strategic reorientation may also involve asset and business sales, with 63% expecting more demergers, divestments and spin-offs, up from 46% last year.
Indeed, an estimated US$100bn in oil and gas assets are being lined up for sale by BP, Chevron, ConocoPhillips, Eni, Equinor, ExxonMobil, Shell and Total. “Asset prices are very low,” says Ahmed Heikal of Qalaa
