Optimism among oil and natural gas executives for sector growth is at its highest level in more than five years despite unprecedented challenges, according to new research by risk management consultancy DNV.
The firm’s latest Energy Industry Insights survey found that 68% of respondents have a positive outlook for the year ahead.
“The last time we recorded a higher figure was in late 2018 (76%),” researchers said. “The current mood is driven by a continuing recovery from the pandemic-induced lows of 2020 when we recorded equal optimism and pessimism (39%).”
The authors explained that, “The Ukraine conflict pushed energy security up the agenda for governments, citizens, and businesses. Sanctions on Russian exports have triggered a noticeable increase in new oil and gas investments.”
Meanwhile, “Worldwide capital investments in oil and gas exploration and production rose by 11% in 2023 and are projected to climb an additional 5% in 2024,” researchers said, citing Evercore ISI projections.
“Several oil and gas firms have also made strategic shifts to intensify their focus on oil and gas operations, at least temporarily,” the DNV team added. “Simultaneously, each year since the conflict began, close to seven-in-ten oil and gas sector respondents have reported that the overall prospects for their organization have been improving (68% in 2022; 73% in 2023; and 70% in 2024).”
Of the nearly 450 executives surveyed, 51% said that globally there is not enough investment in new oil and gas capacity to keep up with rising demand. “This is especially the case among North America respondents, where 70% believe that not enough has been invested,” researchers said. “This contrasts sharply with oil and gas respondents from Europe (40%), and globally, with respondents from energy-intensive industries (37%), the electrical power sector (28%), and the renewables sector (19%).”
Although oil and gas majors are pursuing aggressive reductions in greenhouse gas (GHG) intensity, energy security and an orderly transition to a low carbon economy remain paramount, according to executives quoted by DNV
“The risk of supply shortfalls is still there, and that's why we continue to invest,” TotalEnergies SE’s Arnaud Le Foll, senior vice president, New Business, Carbon Neutrality, said. “Contrary to some of our peers, we never announced that we would target a specific reduction of oil and gas in this decade because it was clear that demand would remain too high.
“Our goal is to continue supply, but with projects that are the best in class, and where any new investments will decrease the GHG intensity of our portfolio.”
Workforce concerns also remain a thorn in the side of executives, as “skills shortages have become more acute in recent years,” the DNV team said. “Our survey respondents ranked it as the top barrier to growth in 2022 and 2023, while in 2024, it has fallen to second only because political risk has risen sharply.”
Global economic conditions ranked third on the top 10 barriers to growth in 2024 cited by respondents, followed by “lack of policy/government support/funding” and “regulations” at fourth and fifth, respectively.
E&P, LNG Investment Rising
The DNV survey results are in line with the International Energy Agency’s (IEA) recently published World Energy Investment 2024 report, which projects global investment in fossil fuels to rise for a fourth straight year in 2024, driven by the upstream and LNG segments.
“While power sector investment…has shifted substantially in support of energy transitions, the same cannot yet be said for investment in fuel supply,” IEA researchers said. “Demand for fossil fuels remains robust as the world emerges from a period of vast turbulence caused first by the Covid-19 pandemic and then by Russia’s invasion of Ukraine.”
Upstream oil and gas spending is poised to grow by about 7% to $570 billion in 2024, driven by national oil companies in the Middle East and Asia, IEA found.
“The huge increase in revenues and profits during the price spikes of 2021-2022 has not translated into a similar-sized rise in new capital expenditures,” researchers said. “More has gone towards dividends, share buybacks and net debt repayment than to new investments.
“Upstream investment is focusing on projects that are considered viable even under challenging assumptions about future price and regulatory developments, typically through a combination of low costs and low emissions intensities.”
Investment in liquefied natural gas, meanwhile, “is set to rise with a major wave of new LNG export project approvals promising to increase LNG supply capacity” by 50%, or by 250 billion cubic meters between 2023 and 2030. About three-quarters of the growth would come from the United States and Qatar, IEA researchers said.
They added, “Unlike previous LNG supply surges, now there are fewer committed end-use offtakers for these additional volumes, implying a strong shift away from the sellers’ market seen in recent years toward a buyers’ market in the second half of the decade.”
