New study highlights oil and gas sector paradox

June 27, 2024

Despite unprecedented energy challenges, 68% of oil and gas industry leaders express optimism about the sector’s growth in the coming year. This confidence, revealed in a study by DNV, underlines the sector’s resilience as it balances immediate demand for petroleum products with long-term environmental responsibility.

Photo: DNV/Getty

The latest DNV study “The oil paradox – how the oil and gas sector is changing under the influence of uncertainty”, gathered insights from nearly 450 seasoned oil and gas experts to explore rapidly evolving trends and near-term prospects for the sector. The study underlines the sector’s confidence following the crisis in 2020. The industry is investing heavily 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 such as higher interest rates and supply chain disruptions. The sector’s positive outlook is driven by economic recovery and a renewed focus on energy security, partly due to geopolitical events such as the conflict in Ukraine.

Sector challenges in terms of investment, operational performance and profitability

There are, however, serious concerns within the industry. 51% of executives believe that global investment in new oil and gas capacity is insufficient, with 70% of executives in North America being particularly concerned compared to 40% in Europe. Operational efficiency remains a priority, with 62% of organizations planning to increase energy efficiency investments and 78% seeking to standardize tools and processes to reduce costs. In addition, 82% of respondents recognize the need for new operating models to achieve this efficiency. Profitability remains a challenge due to the high level of risk involved in oil and gas investments. Companies such as Equinor, for example, are adjusting capital strategies to balance profitability with strategic goals, especially in renewable energy sectors.

Barriers to renewable energy investment

The study identified the key barriers preventing oil and gas companies from prioritizing renewable and cleaner energy sources. The main challenge, identified by 49% of respondents, is the low financial return or profitability associated with these initiatives. Additionally, 33% point to limitations resulting from existing business models and risk profiles, as well as unclear energy or emission policies. For 30%, the required capital investment is a significant obstacle, and 26% emphasize limitations in organizational capacity, infrastructure and technology. Operating costs are an issue for 21%, followed by organizational culture (19%) and difficulty scaling up or increasing revenue (18%).

Addressing the skills gap for future development

Attracting a young, skilled workforce is key, with 66% of executives prioritizing supporting expansion, decarbonization, and modernization efforts. Innovative workforce development strategies, such as technology-enabled training and leveraging global talent pools, are essential to attracting and retaining talent. The sector is also deeply committed to reducing its environmental footprint, with 61% of executives planning increased investment in decarbonization. Balancing these efforts with current oil and gas demand is key to effectively supporting the energy transition.

The paradox of demand and decarbonization

The future of the sector depends on its ability to meet consumer and business demand and decarbonization goals. Companies such as CPC Corporation Taiwan and TotalEnergies are taking strategic steps to ensure stability and reduce greenhouse gas emissions intensity. As the industry navigates this critical juncture, the balance between high oil consumption and the transition to deeply decarbonized energy systems continues to shape its strategic direction. Leveraging digital tools, new workforce strategies, and increased decarbonization efforts, the industry is poised for structural transformation.

This paradox of change and continuity defines the current energy landscape. While there is a strong push for low-carbon energy, the world’s high consumption of petroleum products remains a significant factor. In addition, there is a strong concern about the long-term security of oil supplies, underscoring the need for the industry to balance immediate demand for fossil fuels with the imperative to invest in sustainable energy solutions. Navigating this complex duality will be critical to the strategic direction of the oil and gas sector in the coming years.

Ditlev Engel, CEO Energy Systems at DNV, commented on the findings, stating: “The oil and gas sector is at a critical juncture. Their dual mandate is to invest in low-emission and renewable energy sources to meet climate goals while meeting global demand, and maintaining operational efficiency and profitability is not an easy option. Our study shows that industry leaders in the sector are confident in their role in the energy transition and are actively seeking solutions to enable this transformation. To accelerate this transformation, more profitable business models and clear policies for this change in the sector are needed. At DNV, we will continue to support the oil and gas sector in decarbonizing and maintaining its current operations as safely, sustainably and as efficiently as possible.”