Industry report: Majority of energy sector thinks it is repeating mistakes

A majority of top oil and gas officials believe the energy sector is repeating the mistakes of past downturns through widespread layoffs and severe budget-axing, according to a new report Monday from Norway-based DNV GL.

About 56 percent of 920 global energy executives surveyed believe too many companies are short-sighted about making quick cutbacks, said the “A New Reality” report from DNV GL, a leading technical adviser to the industry. Nearly three quarters of those surveyed said a new phase of budget management is needed to prepare to succeed in a sustained period of low oil prices.

“Many companies are handling this downturn in exactly the same way as they did the previous one: they are laying off lots of people, stopping projects, and significantly cutting back on research and development,” said DNV GL Vice President Graham Bennett in the report. “The operators can weather the low oil price storm for some time, but the supply chain will suffer far more, and there is a risk of a permanent loss of capacity in the supply chain if low prices persist.”

Elisabeth Tørstad, CEO of oil and gas for DNV GL, said energy companies must focus on cutting complexity, increasing collaboration and driving standardization. “These measures will enable the industry to adjust to the new reality and put it on a sustainable growth path for the long-term,” she added.

However, 61 percent of respondents did say they expect oil and gas operators to increasingly push to standardize their delivery globally, up from 55 percent in last year’s survey.

The top three greatest barriers to growth in 2016 are the low oil price, a weak global economy and uneconomic gas prices, according to the survey results.

Geographically, industry confidence was highest in the Asia Pacific region, where 34 percent of respondents were at least somewhat confident about the outlook for the industry, up from 27 percent last year. Europe and North America have both had a slight drop in
industry confidence since last year. Confidence was lowest in Latin America, where only 17 percent of respondents were positive about the industry outlook for 2016, down from 29 percent last year.

But even the most confident Asian region is still pessimistic overall.

“China’s economic downturn will continue. Meanwhile, Japan is restarting some nuclear-power stations, so it will be buying less gas,” said Jeng Zen Fang, chief engineer of state-owned CPC Corp. in Tawain in the report. “Also, a number of big gas projects are coming online at the same time as sanctions against Iran are coming to an end. These will raise supply as demand continues to fall.”