Oil companies will put decarbonisation “at the heart” of investment plans this year as factors like the climate emergency knock the industry’s confidence, according to a new survey.
DNV GL, technical advisor to the sector, has released its 10th annual oil and gas industry outlook, a survey of more than 1,000 senior bosses from 78 countries globally.
The study projects a “leap” in the number of firms taking action to decarbonise in 2020, with 71% of respondents expecting to boost or maintain investment in that area, up from 54% 12 months ago.
Meanwhile confidence in growth for the sector as a whole has dropped by 10% to 66%, due to issues such as the lower oil price, suppressed demand, and huge social issues such as climate change, air quality and public focus on plastics.
DNV GL regional manager for UK and West Africa, Hari Vamadevan, said these factors mean it is “perhaps not a surprise” the sector’s confidence has dropped, but this “contradicts” the improving outlook for individual firms.
The effects of cost-cutting and innovation mean 64% of industry leaders expect to hit profit targets this year, while nearly half would still expect to hit margins if the oil price dipped to under $50, which has only happened once in the last 15 years (2016).
However, just 28% expect to increase headcount this year, which the report said was “likely because there will be fewer large projects announced in 2020”.
Mr Vamadevan added that firms are “looking to do things smarter and trying to find new business models” which accounts for the headcount limitations, but “niche areas” like innovation, digitalisation and decarbonisation will continue to see investment and new hires come through.
Amid the boost in those looking to decarbonise, the study shows the number of firms expecting to spend money on renewables has jumped ten percentage points to 44% while interest in the hydrogen economy has more than doubled on 2019 to 42%.
Mr Vamadevan said: “We’ve seen a big increase from individuals saying ‘half of us feel we’ll take decarbonisation seriously’ to almost three quarters saying it will not just be taken seriously but it is at the heart of the thinking of the company but also very high on the agenda of company management.”
The three areas which companies should be looking at are reducing offshore emissions, decarbonising product in the pipeline coming to shore and balancing portfolios to include renewables, according to Mr Vamadevan.
He added: “I think to be credible you’ve got to be doing all three. Working in just one area means is too easy to be dismissed as green-washing.
“It is a very challenging transition but I think it is one that the industry is capable of meeting and one that it is excited to meet.”
Despite 71% expecting to increase or maintain decarbonisation investment in 2020, 73% said they would only do so if it made financial sense, so clarity is needed from governments on future regulations and incentives.
This would apply to key technologies being developed like hydrogen and carbon capture and storage (CCS) which remain largely in “pilot stage”.
Mr Vamadevan said: “What we need to unlock it is for it to become commercially viable and that’s not where we’re not quite there yet, and that’s the next step.
“I hope government will play a part in that going forward, especially in the UK where we’re kind of free of the Brexit outlook and can start to take the next step on decarbonisation.”
Despite these measures though, the industry, and society as a whole, remains on track to “overshoot” the targets of the Paris Climate Agreement, which aim to limit global warming to well below 2°C.
Mr Vamadevan said this illustrates a need to accelerate the energy transition.
He added: “At the moment there is no question we are on track to overshoot those metrics and that needs to be a huge concern for everybody, whether you’re in the oil and gas industry or not.”