By Will Bugler
When all is said and done, tackling climate change will require a sustained transition away from fossil fuels. Coal and oil will have to be left in the ground. So why then, in the face of this inescapable reality, does a recent study suggest that confidence levels amongst senior oil and gas executives have nearly doubled in the last 12 months?
The findings come from a survey from the Norwegian global quality assurance firm DNV GL, who interviewed 800 senior oil and gas executives and found that confidence has risen from 32 percent in 2017 to 63 percent today. This optimism is backed up by company plans to increase capital expenditure, with 66 percent of companies planning to invest in the coming year. More than a third of respondents (36 percent) also expect to increase research and development spending – the highest number in four years.
The reason for the upsurge in confidence appears to be based on a belief that oil and gas companies are preparing well for the transition to a low carbon economy. Tellingly, for the first time in eight years, industry confidence is rising faster than the global oil price. High fossil fuel prices, it appears, are no longer the sole driver of industry prosperity. This suggests that many executives are confident that their businesses have evolved enough to thrive even when fuel prices are low.
Maria Moræus Hanssen, CEO of Dutch oil and gas firm DEA says that the transition is underway in the sector, “the majors will turn into energy companies – they will broaden their portfolios” she said, “partly because there are strong investment opportunities outside oil and gas, and partly to position themselves for a changing future.”
This sentiment was echoed by many respondents to the DNV GL survey, with several predicting more regulatory and social pressure for firms to make a transition to clean energy. “The greatest looming challenge for oil and gas companies is how they adapt to the energy transition,” says DNV GL’s Bente Pretlove, “there will likely be greater regulatory and social pressure forcing the industry towards decarbonisation. To succeed, the industry will need to make the right investments and harness technology and innovation more than ever.”
Opportunities for investment
While the transition to a low carbon economy is often cast as a risk to the sector, this research suggests that there will be significant opportunities for those firms who take early action to invest in low-carbon energy, and in measures to increase the resilience of their operations to climate change and its impacts. “We see the future for cost-effective, low-carbon power generation as really about renewables plus gas.” Mark Gainsborough, executive vice president of New Energies at Shell, “a challenge going forward will be to invest more consistently, to maintain our purpose over time, and not be too disrupted by short-term changes.”
The fact that oil and gas companies are taking a long-term view with regards to climate change is a promising sign. It is difficult to imagine a scenario where energy security can be maintained in the face of climate impacts that does not involve the cooperation, skill and power of the oil and gas majors. Their willingness to embrace the energy transition and drive systemic change in the sector is significant for sectoral climate resilience.
A copy of the report “Confidence and control: The outlook for the oil and gas industry in 2018″ can be downloaded here.