Analysis by DNV GL finds that fossil fuel companies are ramping up their interest in the energy systems of the future this year as they seek to transform for the long term
By 2050, Carbon Tracker claims renewables could power the world and displace fossil fuels (Credit: Shutterstock/pan demin)
The oil and gas industry is expected to increase its investments in green technologies in 2021, according to a report.
The analysis by risk management firm DNV GL finds that fossil fuel companies are ramping up their interest in the “energy systems of the future” this year as they “seek to transform for the long term”.
It shows that a record two-thirds (66%) of the 1000 senior oil and gas professionals that were surveyed reported that their organisation is actively adapting to a less carbon-intensive energy mix in 2021, up from just 44% in 2018.
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.
Remi Eriksen, group president and CEO of DNV GL, said:“Net-zero climate policies began to proliferate in 2020, from Europe to China, and made it onto the table in the US.
“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.”
Just a fifth of oil and gas industry to increase oil projects investments amid green technologies shift
The research shows that 57% of oil and gas producers plan to increase investment in renewables, up from 44% last year, while 48% expect to increase investment in green or decarbonised gas.
Just 21% said 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%.
The majority of senior oil and gas professionals expect these shifts in investment will lead to a “wider reshaping of the industry”. As much as 78% believe there will be increased consolidation in the year ahead, up from 64% a 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.
Transformational investments are expected to come despite a “crash in confidence” for industry growth following the Covid-19 pandemic and the subsequent oil and gas market crash. But only 39% of senior oil and gas professionals are confident about industry growth in 2021, down from 66% last year.
Oil and gas industry downturn “may be different from those of the past”
The oil and gas industry is moving through its third major downturn in 12 years as a result of a drop in energy demand, but the analysis claims the outlook for 2021 is influenced by the possibility that this downturn “may be different from those of the past”.
It added that perhaps the most significant difference for the industry this year is the “shift in capital away from fossil fuels”.
Eriksen said: “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.
“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.”
The report notes that cost cutting will still be a universal priority (96%) for 2021, but that the industry is “already lean.
A resilient 63% said their organisation will still achieve acceptable profits if the oil price averages between $40 to $50 per barrel in 2021 – but there are signs that traditional cost cutting methods are hitting their limits.
DNV GL vice president Hans Kristian Danielsen said:“The trouble with the industry’s available cost efficiency levers is that most of them have been pulled quite hard already.
“Cost efficiency has been an uninterrupted priority in each of the past seven years. For some, it is getting harder to squeeze any more water from the sponge. Four fifths of senior oil and gas professionals say cost cutting will be more challenging than ever in 2021.”
Oil and gas industry looking longer term to “transformational investments”
But the oil and gas industry is not hitting the spending brakes as hard as it did after the downturn in 2014, according to the analysis.
While the proportion of respondents expecting to maintain or increase capex in the year ahead has fallen to 62% – down from 72% going into 2020 – this is much higher than the 43% recorded following the last downturn.
DNV GL said the industry cut costs and waited for oil demand to rise during the last downturn, then renewed investment in oil and gas.
While some in the industry are expecting a quick recovery, its research shows that most are looking longer term to “transformational investments” – to projects that will decarbonise the industry.
“Companies are betting long term when making transformational investments, aiming to navigate the multiple transitions taking place at different speeds around the world,” said Danielsen.
“While we see a crash in confidence for industry growth in 2021, we see growing confidence in the opportunities that lie in a decarbonised future.”