(OET) Following the onset of the Ukraine crisis, the global oil and gas industry embarked on a growth upcycle, raising concerns that this is putting net-zero 2050 commitments at risk. With this at the forefront, the energy supply chain is refocusing on the thriving oil and gas sector, triggered by a lack of consistent and profitable work in green projects, outlines a new report from the Energy Industries Council (EIC), an energy industry trade association and voice for the global energy supply chain.
According to the Energy Industries Council’s 7th Survive and Thrive report, the energy supply chain bosses are getting frustrated by net-zero delays, which drive them to shift their focus back on the oil and gas industry, despite the growing demand and ambitious global pledges for net-zero by 2050.
Stuart Broadley, Chief Executive Officer of the EIC, commented: “The much lower level of funding for green projects, compared to hydrocarbons, highlighted in this report, is having a direct impact on energy supply chain businesses. They are not seeing enough renewable and transition-related work cascading down into their order books.
“They can’t wait for policy pledges anymore, so they look to more active markets like oil and gas to support their growth plans. This is such a lost opportunity. The supply chain wants to be part of and to drive net-zero solutions, but opportunities just aren’t there, in anything like enough volume or profitability.”
The report’s findings, indicating that the world’s oil and gas markets are experiencing a period of significant growth, are backed up by EIC’s financial investment decision (FID) data, which suggests that oil and gas projects are more valuable and more likely to proceed with full funding compared to renewable and transition technologies such as wind and hydrogen.
Oil & gas vs low-carbon and renewables
Furthermore, the report hammers home that oil and gas segments, including upstream, midstream, and downstream, have the highest FID rates, averaging around 20 per cent for projects with start-up dates between this year and 2028. On the other hand, renewable energy and energy transition technologies have much lower FID rates: offshore wind stands at only 8 per cent, hydrogen at 3 per cent, carbon capture at 2 per cent, and floating offshore wind at just 1 per cent.
As a result, the EIC points out that this information raises the prospect of rapidly widening disparities between green ambitions and the reality of what businesses see in their order books. In light of this, the report underlines that a decade of underinvestment in global energy infrastructure, coupled with energy security concerns and a return to normal activity levels after COVID-19, has led to high energy prices, rising costs, delayed renewable energy projects, and worries about skill shortages.
Aiming to provide early warning signals of policy challenges that are starting to rear their heads, the EIC’s report highlights the perilous position of net-zero targets, as there is a growing gap between net-zero dreams and industry reality. Therefore, the report calls on policymakers to either find ways of getting back to net-zero commitments or look into minimising the damage done after accepting the reality that targets will be missed.
“It’s high time for a reality check. We ask governments and energy policymakers to act now, to bring stakeholders together to address this energy policy crisis, to re-ignite funded demand for clean energy products and services, and to provide the right policy environment that encourages investment, innovation and the seeding and rooting of future, world-class, green-technology exporting businesses,” added Broadley.
Based on the information in this report, oil and gas feature heavily in the current energy investment landscape, both in terms of its high levels of activity and the resilience it potentially provides to businesses. With the world teetering on the brink of a recession, the EIC report highlights that energy players and politicians believe they are safe from the worst ravages of such a downturn when active with oil and gas, compared to more vulnerable sectors like nuclear, hydrogen, and floating offshore wind.
Moreover, the report confirms that the least used and hardest growth strategy remains the development of new export and international markets for the seventh straight year. The report also seeks clarity on the talk of a skills crisis, suggesting businesses are largely able to meet their growth commitments with the resources at their disposal. However, there are worries about skills, which will be required for a future growth spurt of the green revolution once it takes off.
The EIC’s report serves as a call to action, urging stakeholders to listen to the needs of the global energy supply chain and work collectively to address the challenges faced by businesses in expanding into new markets, achieving net-zero targets, and driving the energy transition forward.
Some progress in renewable energy deployment has been made, as illustrated by another report, which confirms that the UK energy market is shifting its focus to renewable energy due to a surge in renewable energy installations last year, driven by concerns over energy security and the need for affordable low-carbon power.
The challenge in front of the policymakers is to ensure that the barriers to growth and innovation continue to be removed while necessary measures are put in place to maximize investment in the wider UK energy market.