The oil and gas industry enters the new decade with a full agenda as organisations across the value chain face the pressure of several evolving threats and opportunities, while navigating current market volatility. Most of the industry must work to balance short-term tactics with decarbonisation and business transformation to ensure long-term competitiveness.
According to DVN –GL Industry Outlook 2020 Report, it says the outlook for 2019,76 per cent of senior oil and gas professionals were confident about industry growth – more than double the figure from 2017. For 2020, however, confidence in industry growth has stalled.
DVN –GL says it latest survey – including 1,031 respondents from 78 countries – finds 66 per cent confident of industry growth in the year ahead. “This is still a strong majority, confirming the new-found resilience to lower prices and volatile markets that we reported last year. However, looking ahead to 2020, enough doubt has crept in to correct the upward trend in industry confidence”.
It stated that the story beneath this weaker optimism holds several positives for the oil and gas industry. While there is persistent uncertainty and growing complexity, the industry is also taking bold decisions, building greater efficiencies, and rising to long-term challenges as the world pivots to a lower carbon energy future.
It reported that organisational confidence is steady, despite industry jitters underlining these positives is the fact that, when asked about their own organisations rather than the industry in general, respondents’ confidence had not fallen to the same extent.
Confidence in the overall prospects for their organisations in 2020 is down just four percentage points, to 70 per cent, compared with 2019. Optimism about reaching revenue targets in 2020 is down just three points, to 66 per cent, and respondents’ confidence in reaching their own profit targets is, in fact, up two points, to 64 per cent.
Organisational confidence may be evolving – still correlated with oil and gas prices, but increasingly sustained by stronger efficiency, new business models and digital (and other technological)innovation. Momentum is also growing behind longer-term strategies to decarbonize oil and gas production and consumption, and to diversify away from fossil fuels.
“It is a very interesting time to be in the oil and gas industry,” says 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.”
The report said oil and gas prices are no longer the most important factor influencing how confident respondents are in their organisations’ prospects.
This has been replaced by organisational strategy, which includes respondents’ current projects, planned investments, and expansion into new markets. Strategy is considerably more important to those that report higher confidence in their organizations’ overall prospects, as well as those reporting higher confidence in revenue and profit targets. This suggests that, in current conditions, a strong strategy can drive robust confidence, even in the face of considerable market uncertainty.
This is not to say there is a ‘best strategy’ for any sector of the industry; companies are profiting from a diverse range of approaches to regions, risk, costs, investment, modernization, diversification, decarbonisation and more. As Sebastian Koks Andreassen, CEO of the Scandinavia arm of INEOS Oil & Gas, part of the multinational energy and chemicals company, says: “Companies can choose a strategy and apply it successfully or unsuccessfully. So, sometimes it is more about execution than a right or wrong strategy. We try to be very aware of the deficits and pitfalls of any given approach.”
While companies are drawing confidence from their strategies, our survey results indicate that the oil price and the global economy have become the top two barriers to growth, replacing competitive pressure and skill shortages, the top barriers in 2019.
This could signal a shift from bullish to bearish sentiment: 2020 is expected to see macro-economic issues slowing growth, rather than the challenge of rivals jostling to capitalize on stronger growth conditions. At the same time, it is also a shift from barriers that organisations can control themselves to ones they can do less about.