A global oil and gas industry still reeling from plummeting demand and the proliferation of net-zero climate policies is bracing for a tumultuous year ahead, with further cost cuts, consolidation and constricted hydrocarbon exploration and development likely in 2021, according to a new survey of senior-level energy professionals.

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The survey, published by industry advisory DNV GL, found that a sharp rise in expected spending on lower-carbon energy this year was accompanied by deep pessimism about the chances of industry growth in 2021.

Turmoil and transformation

The latest instalment of the annual survey — appropriately titled 'Turmoil & Transformation' — found that fully two-thirds of the participants said their respective organisations are “actively adapting to a less carbon-intensive energy mix”, with 57% saying they plan to increase investment in renewables, up from 44% last year.

Just under half — 48% — plan to increase investment in “green or decarbonised” gas, DNV GL said, with only one-fifth saying they expected to increase spending on oil projects this year.

A scant 39% of respondents expressed confidence for industry growth in 2021, down from 66% last year.

Noting that the oil and gas industry is navigating the third major downturn in 12 years, DNV GL said the survey indicates that many believe this down cycle is different from those of the past, mostly due to a shift in investments away from fossil fuels.

Changing sentiment

“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 DNV GL vice president Hans Kristian 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 said.

Many government stimulus packages following the economic collapse brought on by Covid-19 include strong incentives for low-carbon energy, including in the US, where President Joe Biden has proposed sweeping policy changes that favour renewables over fossil fuels.

Danielsen 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.”

Oil outlook

A substantial chunk of the industry is still committed to oil, however, with 19% of respondents saying neither renewables nor decarbonisation is a significant priority for their businesses, and 26% indicating that their prospects for 2021 are mostly tied to the outlook for oil and gas demand and supply.

Survey results: DNV GL vice president Hans Kristian Danielsen Photo: DNV GL

Projects that do draw investment are likely to be quicker and more flexible, DNV GL said.

Michael Cohen, chief US economist and head of oil analysis at UK supermajor BP, said: “For 2021, in a period of uncertainty, I would not expect companies to embark on any new multi-billion-dollar greenfield projects.”

Cohen added: “It will be a world for advantaged hydrocarbons, those with low marginal costs and short cycles – and that's not just tight oil, it's also tie-backs, brownfield redevelopments and EOR (enhanced oil recovery), for example.”

The study was compiled from a survey of more than 1000 senior oil and gas professionals and executives, along with interviews with industry experts and analysts. Research was conducted by teams from DNV GL and Longitude, a Financial Times company.

About one-third of the organisations included in the survey had annual revenues of less than $100 million and 27% had revenues exceeding $1 billion. The respondents included senior engineers and board-level executives from both private and publicly held companies “across the oil and gas value chain”, DNV GL said.

Consolidation

About 36% of respondents expect more industry layoffs in 2021 and 78% expect to see more consolidation in the year ahead, up from 64% a year ago. Asset and business sales also are expected to be brisk, with 63% expecting more demergers, divestments and spin-offs in 2021, up from 46% last year.

The sense that the recovery from this downturn will be different than previous cycles runs throughout this year’s study, DNV GL said.

Erlend Fjosna, head of innovation and digital partnering at TechnipFMC, said: “The oil and gas industry is used to being submerged under water during cyclical downturns — we hold our breath and then come up again when conditions improve.

“We are used to adapting, but this is not like what we are used to. This is a step change down in the total volume of projects. It is sustained lower demand and lower prices.”