Industry must balance increasing demand for petroleum products and growing pressure to transition to low-carbon energy sources to reduce emissions
- A recent DNV survey reveals that 64% of oil and gas industry leaders say that the pace of the energy transition is accelerating, while 68% are optimistic about sector growth despite lingering impacts from the 2020 downturn.
- Digital technologies and low-carbon innovations are driving the sector’s transformation, making it leaner, cleaner, and smarter.
- However, concerns remain among executives over investment in new oil and gas capacity, highlighting the sector’s paradox between demand and decarbonization.
Oslo, 25 June 2024 – Despite unprecedented energy challenges, 68% of oil and gas industry leaders express optimism for sector growth in the coming year. This confidence, revealed in a survey by DNV, underscores the sector’s resilience as it balances immediate demands with long-term environmental responsibilities.
The latest DNV survey, “The Paradox of Petroleum – How the oil and gas sector is transforming through uncertainty”, gathered insights from nearly 450 senior oil and gas professionals to examine rapidly evolving trends and the near-term outlook for the sector. The survey highlights the sectors confidence following the 2020 downturn. The industry is heavily investing in alternative energy sources such as wind, solar, hydrogen, carbon capture, utilization and storage (CCUS), and biofuels. These investments are paving the way for new revenue streams, despite challenges like higher interest rates and supply chain disruptions. The sector’s positive outlook is driven by recovery and a renewed focus on energy security, partly due to geopolitical events like the conflict in Ukraine.
The sector challenges of investment, operational performance, and profitability
However, there are significant concerns within the industry. 51% of executives believe global investment in new oil and gas capacity is insufficient, with 70% of North American executives particularly concerned compared to 40% in Europe. Operational performance remains a priority, with 62% of organizations planning to increase investments in energy efficiency, and 78% aiming to standardize tools and processes to cut costs. Furthermore, 82% of respondents recognize the need for new operating models to achieve these efficiencies. Profitability continues to be a challenge due to the high-risk nature of oil and gas investments. Companies like Equinor for example are adjusting capital strategies to balance profitability with strategic goals, especially in renewable energy sectors.
Barriers to renewable energy investment
The survey ranked top barriers hindering oil and gas companies from prioritizing renewable and cleaner energy sources. The leading challenge, cited by 49% of respondents, is the low financial return or profitability associated with these initiatives. Additionally, 33% point to the constraints posed by their existing business models and risk profiles, as well as unclear energy or emissions policies. Required capital investment is a significant obstacle for 30%, while 26% highlight limitations in organizational capabilities, infrastructure, and technology. Operational costs are a concern for 21%, followed by organizational culture (19%) and the difficulty in scaling up or growing revenue (18%).
Addressing the skills shortage for future growth
Attracting young, skilled workers is critical, with 66% of executives prioritizing it to support expansion, decarbonization, and modernization efforts. Innovative workforce development strategies, such as technology-driven training and leveraging global talent pools, are essential to attract and retain talent. The sector is also deeply committed to environmental impact reduction, with 61% of executives planning increased investment in decarbonization. Balancing these efforts with ongoing oil and gas needs is crucial to effectively support the energy transition.
The paradox of demand versus decarbonization
The future of the sector hinges on its ability to meet both demand from consumers and businesses and decarbonization targets. Companies like CPC Corporation Taiwan and TotalEnergies are making strategic moves to ensure stability and reduce greenhouse gas intensity. As the industry navigates this pivotal moment, the balancing act between high petroleum consumption and advancing towards deeply decarbonized energy systems continues to shape its strategic focus. Leveraging digital tools, new workforce strategies, and increased decarbonization efforts, the industry is poised for a structural transition.
This paradox of change and continuity defines the current energy landscape. While there is a strong push towards low-carbon energy, the world’s high consumption of petroleum products remains a significant factor. Additionally, there is a keen concern over long-term oil supply security, underscoring the industry’s need to balance immediate fossil fuel demands with the imperative to invest in sustainable energy solutions. Navigating this complex duality will be crucial for the oil and gas sector’s strategic direction in the coming years.
Ditlev Engel, CEO, Energy Systems at DNV, remarked on the findings, stating, “The oil and gas sector is at a critical juncture. Their dual task to invest in low carbon and renewable energy sources to meet climate targets while meeting global demand and maintaining operational efficiency and profitability is not an easy fix. Our survey demonstrates that industry leaders in the sector are confident about their role in the energy transition and are actively seeking solutions to navigate this transformation. More profitable business models and clear policies are needed to accelerate this change in the sector. As DNV we will continue to support the oil and gas sector to decarbonize and keep their current operations safe, sustainable and as efficient as possible.
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Neil Slater
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Energy Systems
DNV
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E-mail: neil.slater@dnv.com
Penda Sall
Media Relations
Energy Systems
DNV
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E-mail: penda.sall@dnv.com
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