New DNV research highlights the paradox of the oil and gas sector

DNV’s latest study, ‘The Oil Paradox – How the Oil & Gas Sector Is Changing in the Face of Uncertainty’, gathered insights from nearly 450 senior oil and gas professionals to explore the rapidly changing trends and near-term prospects for the sector. The study highlights sector confidence following the downturn 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 related to investment, operational performance and profitability

However, the industry has serious concerns. 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 investment in energy efficiency and 78% aiming to standardize tools and processes to reduce costs. Moreover, 82% of respondents recognize the need for new operating models to achieve this efficiency. Profitability remains a challenge due to the high-risk nature of oil and gas investments. Companies like Equinor are adapting capital strategies to balance profitability with strategic goals, particularly in the renewable energy sectors.

Barriers to investment in renewable energy

The study identifies key barriers to oil and gas companies 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 young, skilled workers is key, and 66% of executives prioritize 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 impact, with 61% of executives planning increased investment in decarbonization. To effectively support the energy transition, it is crucial to balance these efforts with current demand for oil and gas.

The paradox of demand and decarbonization

The future of the sector depends on its ability to meet both consumer and business demand and decarbonization targets. Companies like CPC Corporation Taiwan and TotalEnergys are making strategic moves to ensure stability and reduce greenhouse gas intensity. As the industry navigates this pivotal moment, striking a balance between high oil consumption and the pursuit of deeply decarbonized energy systems continues to shape its strategic approach. 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 focus on low-carbon energy, high global consumption of petroleum products remains an important factor. In addition, there are serious concerns about the long-term security of oil supplies, underscoring the industry’s need to balance its immediate demand for fossil fuels with the need 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 of Energy Systems at DNV, commented on the findings, stating: “The oil and gas sector is at a critical juncture. Their dual mandate of investing in low-carbon and renewable energy sources to meet climate goals while meeting global demand and maintaining operational efficiency and profitability is no easy feat. Our research 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. More profitable business models and clear policies for this sector change are needed to accelerate this transformation. At DNV, we will continue to support the oil and gas sector in decarbonizing and maintaining its ongoing operations as safely, sustainably and as efficiently as possible.

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