- Author: Neil James Slater
- Keywords: Oil & Gas, Oil and gas
- 61% of senior oil and gas professionals in China say their organizations are actively preparing for the transition to a lower-carbon energy mix
- Nearly 80% expect demand for gas to exceed supply in the next five years
- 87% are confident about the sector’s growth prospects in 2019
- Nearly 40% predict increased capital expenditure in the year ahead – a four-fold increase in two years
- Nearly two thirds (63%) say their companies will boost cost control this year as the risk of supply chain inflation increases.
New research from DNV GL, the technical advisor to the oil and gas industry, reveals that six in ten (61%) senior oil and gas professionals in China say their organizations are actively preparing for the transition to a lower carbon energy mix compared to 51% globally.
Industry leaders’ focus on decarbonization aligns with the Chinese government’s new ‘Blue Sky’ plan to tackle air pollution by reducing emissions of sulphur and nitrogen oxides and other pollutants by at least 15% from 2015 levels by 2020.
These findings appear in A test of resilience, the technical advisor’s ninth annual report on the outlook for the oil and gas industry. The research provides a snapshot of sector confidence, priorities and concerns for the year ahead, based on a global survey of nearly 800 senior oil and gas professionals and in-depth interviews with sector leaders. It finds a clear majority (79%) of senior industry professionals in China expect demand for gas to exceed supply in the next five years (compared with 43% globally) as the country’s government continues to switch national energy consumption from coal to gas as part of its clean-up strategy.
Nearly three quarters of China’s senior oil and gas professionals (74%) predict increases in investment to decarbonize gas supply in 2019, compared with 56% globally. Almost two-thirds (61%) say not enough investment is currently being made in liquefied natural gas and pipeline infrastructure.
“DNV GL’s research shows more companies across China’s oil and gas value chain working to deliver the government’s Blue Sky policy while simultaneously starting to adjust to the global transition to lower carbon energy production and consumption,” said Arthur William Stoddart, Regional Manager of Greater China, Korea & Japan, DNV GL - Oil & Gas.
“Prospects for gas in China look positive if supportive infrastructure investment materializes. The boost to the Chinese oil and gas industry from this focus on gas is being reflected in high levels of confidence in the national and global industries and their own organizations’ spending plans and financial targets,” Arthur William Stoddart, added.
China (87%) and Brazil (93%) rank highest in the world for confidence in global oil and gas sector growth in 2019, compared to 76% globally. China respondents’ confidence in their organizations’ own overall prospects this year are at a world-leading 92%, sharply higher than 70% last year.
Nearly 40% now expect their organizations to increase capital expenditure in the next 12 months, compared with a third in 2018 and a tenth in 2017. The proportion of China-based respondents to DNV GL’s research foreseeing greater operating expenditure in the year ahead has also risen from 30% in 2018 to 42%. There are also significantly raised expectation levels that headcount will increase (37%, compared to 20% in 2018).
Research and development figures more prominently in the spending plans of Chinese oil and gas sector companies than globally in 2019. Nearly two thirds (63%) in China say their organizations will boost spending for these purposes this year, compared with 50% in 2018 and only 23% in 2017. Globally, 36% of respondents predict greater spending on this, the same level of expectation as in 2018.
However, in a test of the industry’s resilience, nearly two thirds (63%) experienced cost inflation from suppliers in 2018, compared to 41% globally. More than half (55%) in China, and 40% globally, think suppliers will drive notable price inflation in 2019. Almost two thirds (63%) in China consequently expect to increase cost control this year, compared with 53% in 2018 and 23% in 2017, and with 44% globally in 2019.
In pursuing cost efficiency in the lower oil price era, digitalization tops expected investment priorities in China. Two thirds (66%) of respondents see spending on digitalization rising this year, with a focus on data sharing between organizations, data platforms, cloud-based apps/databases, and artificial intelligence.