New research shows resilient UK oil and gas sector set to spend while addressing challenges of efficiency and decarbonization

A test of resilience: the outlook for the oil and gas industry in 2019
London, 22 January 2019: New research has revealed that the UK oil and gas sector’s resilience to volatile market conditions will be put to the test in 2019, as business leaders expect the industry to commit to greater investment to meet hydrocarbon demand
Hari Vamadevan, DNV GL
Hari Vamadevan, Regional Manager, UK and West Africa, DNV GL - Oil & Gas
The outlook for the oil and gas industry in 2018: Key trends
Key trends 2019
  • Confidence in the outlook for the UK oil and gas sector nearly quadruples in two years, from 18% to 71%
  • 68% of senior professionals in the sector expect their organization to increase or maintain capital expenditure in 2019
  • 72% expect to sustain or increase operating expenditure, a near doubling from 37% in 2017
  • 20% expect cost efficiency to be a ‘top priority’ in 2019, a drop from 37% in 2016, and 25% in 2017 
  • 61% expect to spend more on digitalization this year
  • 39% will focus this year on adapting to a less carbon-intensive energy mix.

Confidence in the outlook for the UK oil and gas sector has increased nearly fourfold in two years, from 18% to 71%. Two thirds (67%) of its senior oil and gas professionals believe more large, capital-intensive oil and gas projects will be approved this year, according to A test of resilience, DNV GL’s ninth annual report on the outlook for the oil and gas industry.  

A similar percentage (68%) plan to increase or maintain capital expenditure in 2019 – more than double 2017’s figure of 33%. And the proportion of industry leaders who expect to raise or sustain operating expenditure has also grown over the two-year period, from 37% in 2017 to 72% for 2019. 

“The significant boost in expectations for spending are welcome signs of an industry that is, for the most part, prepared to close the chapter on a string of challenging years. However, this also brings new challenges for the sector in 2019, the hard-earned cost efficiencies developed over the downturn could be put to the test as we see early signs of cost inflation returning to the industry,” said Hari Vamadevan, Regional Manager, UK and West Africa, DNV GL - Oil & Gas. 

A third (33%) of respondents in the UK anticipate stricter cost efficiency to take hold in their organization in 2019, compared with more than half (53%) in 2018. Two fifths (41%) say they experienced price inflation from suppliers in 2018, and 44% expect suppliers to drive notable price inflation in 2019. One potential cost pressure is illustrated by skills shortages and/or an ageing workforce being the most cited barrier (39%) to growth. This is almost double the 21% of respondents globally who see this as an obstacle. 

Recruitment is firmly back on the agenda after four years of consistent reductions, supported by cost-efficiency measures. Nearly half (48%) of the UK senior professionals surveyed expect to grow their workforce in 2019 – more than three times as many respondents than four years ago (10%).  

The oil and gas industry’s efficiency efforts coincide with more than a third (37%) of UK senior oil and gas professionals expecting increased research and development (R&D) spending this year. Digitalization comfortably leads their R&D priorities in 2019, with 61% of UK respondents to DNV GL’s research expecting their organization to increase spending in this area in 2019. 

The top five priorities within the UK industry’s digitalization agenda relate to data sharing, integration and access. They are data platforms, cloud-based applications/databases, digital twins, artificial intelligence and data sharing between organizations. 

Nearly two thirds of respondents (63%) say their company will prioritize the quality and availability of data in 2019. Nearly two fifths (39%) of senior industry professionals in the UK will focus on actively adapting to a less carbon-intensive energy mix in 2019. While momentum for long-term decarbonization is building, DNV GL’s research indicates that, in the UK, companies today are more likely to be doing so because they want to rather than being told to. 

Business opportunities and competitive advantage topped the list of factors most likely to drive oil and gas companies in the UK to decarbonize operations in 2019. Social/political pressure and regulations came second and third respectively. One-third (35%) of UK respondents said they are looking to increase investment in renewable energy in 2019. A quarter (25%) said that their organizations will boost investment in gas-focused projects and portfolios. 

R&D into the decarbonization of gas transmission and distribution networks through the introduction of hydrogen into the mix is being sustained –a quarter (25%) of respondents expect to see a significant increase in its use in 2019.