Welcome to part four of our series highlighting key findings from the L.E.K. Consulting 2021 Energy Transition Study. In our last article, we relayed what 261 energy executives think their biggest energy transition opportunities are. We’ll continue the discussion now with a look at what oil and gas companies need in order to effectively scale their energy transition programs.
We gave our survey respondents a list of eight energy transition capabilities and asked them to choose the three they believe they’re least prepared for (see Figure 1). Almost half (48%) put personnel or talent in their top three. Technology/research and development (R&D) capabilities tied with renewable fuel end-use for the second-most-popular choice — each landed on the top-three list for 43% of our respondents. These were closely followed by carbon credit offset capabilities and existing infrastructure to support development platforms, both a top choice among 39% of respondents.
Let’s dig deeper into the first two issues — personnel and technology/R&D.
Personnel. The current generation of graduates view oil and gas differently from past generations, with many seeing a conflict with personal values around the societal impact of these industries as well as opportunities for “growth” in new energy technology. Furthermore, the personnel needs of an oil and gas operation vary from new energy transition areas in terms of skill set. Despite oil and gas companies leading capital investment in many of the emerging new low-carbon solutions, the aforementioned perception by the current generation of graduates and skills misalignment are creating challenges in recruiting and retaining top talent.
Technology/R&D. Oil and gas companies are technology companies that, for decades, have innovated engineering solutions to extract resources from miles below the surface. However, two elements of technology and R&D are making the energy transition difficult. First is picking (and timing) the winners, and the other is capability mismatches. For oil and gas companies with large R&D budgets, the big question still remains how to allocate the research and development across myriad energy transition solutions. Adding to the challenge is that many energy transition solutions are too far outside of a company’s R&D capability.
That said, the priorities shift by segment. They break down this way:
- Major exploration and production (E&P) companies: an existing infrastructure/development platform tied with personnel/talent
- Other E&P players: personnel/talent along with investment funds availability were among the top noted
- Midstream and downstream respondents: personnel/talent, followed by technology/R&D and carbon credit offset capabilities
- Oilfield services and equipment: personnel/talent tied with technology/R&D
- Investors and financial entities: personnel/talent, followed by technology/R&D and an existing infrastructure/development platform
As it happens, survey respondents indicate similar capability gaps related to their sustainability initiatives and environmental, social and governance (ESG) goals. We haven’t talked about sustainability and ESG so far, focusing on energy transition initiatives instead. That will change in our next article, so stay tuned.