GLOBAL economic conditions, coupled with uncertainty around the price of oil, have led to a weakening of optimism for growth in the oil and gas sector, according to a new survey of more than 1000 senior industry figures.

Although the annual outlook from Norwegian classification group DNV GL showed two-thirds (66%) were confident of growth this year, that figure was down 10 percentage points from last year.

However, the survey also indicated that 71% expected to increase or maintain their investment in decarbonisation – a sharp rise from the 54% recorded in 2019.

DNV GL said companies were planning multiple routes to achieve this switch, including diversifying into renewable energy, decarbonisation of oil and gas production and increasing investment in decarbonised gas such as hydrogen, produced from electrolysis and renewables, or natural gas combined with carbon capture and storage (CCS).

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It said the industry’s intentions to increase investment in the hydrogen economy had more than doubled in a year.

“It is a very interesting time to be in the oil and gas industry,” said Liv Hovem, CEO of DNV GL - Oil & Gas.

“It is demanding intellectually because everybody is considering new directions and needs to make complex choices that have powerful impacts for the long run, while at the same time we all need to deliver annual results, maintain the shorter-term business, and keep the workforce focused and motivated.” Concerns about the impact of carbon risk on the viability of bigger oil and gas projects appeared to be focussing industry minds in the longer term.

Gerard Reid, co-founder and partner at Alexa Capital, said: “The bigger issue going forwards is carbon risk. In other words, what’s going to happen in 10 or 15 years?

“Let’s assume you are looking at a multi-billion-dollar offshore project. How long is it going to be viable? Will it be 25 years, 15 years, 10 years? When will it get too expensive to take it out of the ground? That’s the difficulty the industry has.”

This greater focus on long-term carbon risk could also affect this year’s outlook for big oil and gas firms, said DNV GL, whose survey showed only 46% of respondents expecting to see more large, capital intensive projects approved than last year.

The research indicated that the industry is responding to growing pressure to meet national and international climate change targets and accelerate the energy transition.

Company intentions to increase spending on gas projects and portfolios have grown from 35% in 2019 to 40% this year. At the same time, the proportion expecting to increase spending on renewable energy has jumped from 34% last year to 44% in 2020, and 40% of respondents expected their organisations to boost investment in decarbonisation this year, up from just 27% last year.

“Simplistically, you could divide oil and gas companies into two baskets,” said Sebastian Koks Andreassen of INEOS. “Some have chosen to diversify away from fossil fuels, and there could be different drivers, including the equity story, investor appetites, available capital and so forth.

“Others, like INEOS, believe we are still serving society by providing a critical resource in oil and gas products, which will be important for decades to come.

“But this does not mean we disregard the green agenda or climate issues. It is just a strategic choice, for now, to stay in the fossil fuels world, while striving to minimize our carbon footprint in all that we do.”

Elisabeth Brinton, a global vice president at Shell New Energies, said government policy and regulations on energy transition were lagging.

She said: “There’s no emphasis on the demand side. That’s the biggest issue. The tax and incentive frameworks in Europe make clean energy uncompetitive against fossil fuels. As a customer in Germany, I have no incentive whatsoever to electrify my heat or install a heat pump. My electricity costs 30 cents and my gas costs five cents; that, to me, is a crazy disincentive.”