The outlook for the oil and gas industry in 2021

An industry forging its own future

DNV GL’s latest research on the outlook for the oil and gas industry, finds that oil and gas companies expect to boost investment in the energy systems of the future this year, as they seek to transform for the long term. Transformational investments come despite a crash in confidence for industry growth and reinvigorated cost cutting.

We tell the full story on the industry’s sentiment, confidence, and priorities in our complimentary report Turmoil and Transformation. This provides comprehensive findings from our survey of more than 1,000 senior oil and gas professionals, commentary from business leaders and industry experts, and analysis and examples from DNV GL’s 11 years of research into the outlook for the sector.

Much of the industry appears to be prioritizing decarbonization above everything else this year.

Many are looking beyond the short-term challenges from the pandemic, betting long term as they invest in a decarbonized future. Roughly half the industry plans to increase investment in renewables and in green or decarbonized gas in 2021. In contrast, just a fifth expect to increase investment in oil projects.  
Significantly, the industry remains diverse, with companies navigating the multiple transitions taking place at different speeds around the world.

Perhaps the most significant difference for the industry for 2021 is the shift in capital away from fossil fuels.

Shifting priorities for investment are also raising expectations for the industry to reshape this year. Investors are reassessing the risks of financing oil and gas projects, and governments and industry are pouring billions into green recovery strategies following the Covid-19 pandemic. 
The financial markets – through the effects of the Covid-19 pandemic – have seen what peak oil demand could look like, and are increasingly factoring in changing sentiment in society towards a decarbonized future. The industry expects there to be increased consolidation in the year ahead, and more demergers, divestments and spin-offs. 

The industry has reinvigorated its focus on cost cutting – but traditional methods are reaching their limits.

Cost cutting will be a universal priority for 2021, but the industry is already lean, posing the question: “how can the industry achieve further efficiencies?”  
Most of the industry’s available cost efficiency levers have been pulled quite hard already, with cost efficiency having been an uninterrupted priority in each of the past seven years. Cost cutting is expected to be more challenging than ever in 2021. 
Of all the cost efficiency levers, digitalization is the one with the most remaining potential for oil and gas companies. The pandemic has forced organizations to throw the normal rules to the side, making them more open to change.

The industry is forging its own future as it recovers from deep market turmoil.

The oil and gas industry is moving through its third major downturn in 12 years, but the outlook for 2021 is influenced by the possibility that this downturn may be different from those of the past.
During the last downturn, the industry cut costs and waited for oil demand to rise, then renewed investment in oil and gas – following a cyclical response to expected cyclical market trends. 
This time, signs are that the industry has mobilized to forge its own future. The sector may invest to transform rather than cut its way out of the present crisis.