DNV GL’s annual outlook for the oil and gas industry makes for particularly interesting reading this year, and its title of ‘New directions, complex choices’ sums up the content quite nicely.
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The report, compiled from a survey of over 1000 senior oil and gas professionals and interviews with industry executives, suggests that optimism for growth in the oil and gas industry has dampened slightly, with 66% of respondents confident of industry growth in 2020, compared to 76% last year.1 This is largely due to uncertainty around the oil price and global economic conditions, with particular concerns that a US-China trade war could lead to a global economic slowdown. It is likely that confidence will have been boosted by the recent announcement that the US and China have signed a ‘phase one’ trade deal, which will see China increase the value of energy imports by US$52.4 billion above 2017 levels over the next two years. However, Ann-Louise Hittle, Vice President, Macro Oils at Wood Mackenzie, warns that while this trade deal is likely to be beneficial to the global economy, it will have limited impact on the global oil market, as well as the refining market in Asia. She said: “In a free trade market, our proprietary Refinery Supply Model suggests that an optimal volume of US crude imports for China is only about 400 000 bpd in 2021. Despite the continued growth of US oil exports, China’s appetite for US tight oil is limited given that its deep conversion refineries are designed to process medium/heavy crudes from the Middle East and Latin America.”
Other key takeaways from DNV GL’s report include the fact that there is an increasing move towards longer-term strategies in the industry, as organisations attempt to establish a position in the energy transition. The number of respondents reporting that their company is actively adapting to a less carbon-intensive energy mix jumped to 60% (up 9% on last year), with 71% expecting to increase or maintain investment in decarbonisation. Strategies being pursued include diversifying into renewable energy, decarbonising oil and gas production, and increasing investment in decarbonised gas. Liv A. Hovem, CEO, DNV GL – Oil & Gas, comments: “Our research shows that the oil and gas industry has placed decarbonisation at the centre of its agenda, and it will remain a priority despite uncertainty from volatile market conditions and stalling expectations for industry growth in 2020.
The research also suggests that cost efficiency, automation and digitalisation are an increasing focus for the oil and gas industry this year. Nearly all respondents (92%) expect their organisation to maintain or increase spending on digitalisation this year, with 65% confident of an increase in spending, specifically.
There was also some good news for the downstream sector. DNV GL reports that its survey respondents from this sector displayed the most confidence in meeting profit targets in 2020 (76%, up from 69% in 2019). This has been attributed to the abundance of cheap natural gas and the introduction of IMO’s sulfur emission limits. Brice Le Gallo, Regional Manager, Southeast Asia & Australia, DNV GL – Oil & Gas, explains: “For the downstream industry there’s an opportunity here to suddenly put new products on the market […] The large refineries will continue to develop new types of fuel for the shipping industry. I can see this driving a lot of refinery upgrade projects in the next two years.”
- ‘New directions, complex choices: the outlook for the oil and gas industry in 2020’, DNV GL, (2020).