More than 260 oil and gas industry executives acknowledge the energy transition is having a considerable impact on their business, but each company is playing the energy transition in different ways. Approximately 55% of respondents believe core oil and gas assets will continue to receive the majority of their capital allocation, while others believe carbon capture, wind power and electric vehicle (EV) infrastructure may be the most likely for incremental capital investment.
Those are just a few of the findings from L.E.K. Consulting’s proprietary study on the state of the energy industry. This study, now in its third year, brings to the forefront the challenges and opportunities created by the transition to lower-carbon energy solutions and internal and external pressures around environmental, social and corporate governance (ESG) and broader sustainability practices. Similar to past releases, we covered themes around capital spending, operating costs and technology development. However, this year’s study broadens the lens beyond trends in just oil and gas.
The study was conducted during July and August of 2021 and includes insights from one-on-one discussions as well as surveys of over 260 oil and gas industry executives and private equity sponsors. It covers a range of global perspectives, with approximately 35% of responses representing North America, and span all segments of the market — from upstream (~40% of respondents) to midstream and downstream (~28%), as well as oil service and equipment (~12%) and investment firms (~20%).
Insights across six themes will be published on our website over the next six weeks. In the meantime, we'd like to share the following select key findings:
- A consensus is clear that decarbonization is critical and energy transition is advancing. Contrarians suggested oil and gas majors pushing into certain transitional areas are certain to fail, but most believe strategies to adapt are critical and the ones being formulated today will be positioned for promising growth over the next several decades.
- The oil and gas industry will play a role in the transition beyond its current hydrocarbon-based core business, but strategies will differ with corporates often taking a longer-term view on the opportunities.
- Approximately 55% of respondents believe core oil and gas assets will continue receiving the majority of their capital allocation over the next five to 10 years.
- Decarbonizing oil and gas operations is viewed as the best way to support low-carbon priorities, especially for smaller companies lacking the capital to transition aggressively into new markets. Carbon capture, greenhouse gas monitoring and managing field efficiencies were cited as the top areas of focus to support this need.
- Feedback suggested the buzz around hydrogen and carbon capture is warranted, but study participants were quick to note the drawbacks to development and the criticality around R&D, personnel gaps, and other enablers to scaling and realizing commercial potential.
- The study confirmed that the pace of change varies considerably by region, with Europe leading decarbonization efforts, but the speed of transition to new models is still inherent to each business’s capabilities and vision.