We’ve been unpacking key findings from the L.E.K. Consulting 2021 Energy Transition Study. In our last article, we talked about the budget allocations for energy transition capabilities and initiatives that are rising across all segments of the oil and gas industry. Now let’s look at where those allocations are going.
We gave our 261 respondents — all energy executives — a list of products and solutions. Then we asked them to select the three that their organization was most likely to invest in over the next five to 10 years. We also asked them to rank their top picks in order of priority (see Figure 1).
The results vary by type of company, but in general most participants indicated that energy transition solutions/initiatives that are closer to their current operations are most likely to get investment attention versus other initiatives that are longer term and farther from their respective core business.
Here’s a breakdown of the top three energy transition solutions/initiatives based on survey responses:
- Oil and gas is a top pick. More than half (56%) say they’ll continue to prioritize traditional oil and gas during the energy transition. That’s a total of 145 respondents. If we look at it by segment, oil and gas makes the top three list for 17% of the major exploration and production (E&P) companies in our survey. It also lands in the top three for 21% of other E&P companies, 17% of midstream and downstream companies, and 22% of oilfield services and equipment (OFS&E) companies. Though sentiment in the media and broader public domain favors emerging energy technologies, the fact is oil and gas is expected to have a meaningful role in the global energy mix for decades, albeit a slowly declining one over time, and the study response fully corroborates that point.
- But emphasis appears to be on decarbonization with a strong response in favor of carbon capture utilization and storage (CCUS). The interesting — and perhaps an expected — nuance about the study responses is CCUS following as the next most-common solution, with 93 respondents choosing it (36% of everyone surveyed). This appears to validate that while oil and gas remains the priority, achieving a lower carbon intensity per barrel is necessary today with the risk of more stringent climate policy and may also offer a way to differentiate in an environment where capital markets are hesitant to reinvest in the oil and gas sector. Of further note, the segment breakdown is more lopsided. CCUS is a top pick for 22% of majors, 17% of other E&P companies and 12% of OFS&E companies. It doesn’t make the top three among any of our midstream/downstream or investor/financial entity respondents, although a small percentage (7% and 5%, respectively) say they do expect to invest in CCUS.
- Batteries and other energy storage fell into the top three for 81 respondents (31% of all survey participants). This is an unexpected result given greater public attention to E&P moves in renewable fuels, wind and hydrogen, but it aligns with our notion regarding battery storage potential, outlined here. The investor/financial entity group in particular sees battery and other energy storage as a top priority for investment, with 19% citing it as the area most likely to be invested in.
What’s the takeaway? In the short-to-medium term, traditional oil and gas will remain a top priority among all segments of the oil and gas industry. But expect to see some shifts. Here’s what the top investment areas seem likely to become, in order of priority:
- Majors: CCUS, oil and gas, and wind power
- Other E&P companies: Oil and gas, CCUS, and renewable fuels (e.g., renewable natural gas, waste-to-energy)
- Midstream and downstream companies: Oil and gas, batteries/storage, and alternative fuels
- OFS&E companies: Oil and gas, CCUS, and electric vehicle (EV) infrastructure
- Investors and financial entities: Batteries/storage, oil and gas, and EV infrastructure
In our next article, we’ll share what oil and gas executives say about where the greatest investment opportunity is in the longer term.