Energy Transition is Slowing, New Global Study Confirms

Energy Sector Investment in Emerging Energy Technologies Shifts as Oil & Gas Industry Refocuses on Core and Decarbonizing Oilfield; Solar and Wind Continue to Grow

BOSTON, March 7, 2024 /PRNewswire/ -- In 2023, energy companies prioritized oil and gas over new energy areas more than they did in recent years, indicating that the drive for energy transition away from fossil fuels is easing up, according to a global study and survey from L.E.K. Consulting, the global strategy consultancy.

The proportion of energy executives who listed "continued oil & gas focus" as a top-three investment area for the next five years rose 25 percentage points by mid-2023 to more than 70%, compared with 2021 survey findings. And they said their biggest sustainability commitment in 2023 was decarbonizing their existing operations. The fifth annual L.E.K. Global Energy Study includes qualitative insights from about 40 roundtable discussions as well as quantitative survey data involving about 300 senior executives in multiple sectors of the energy industry, including oil and gas, utilities, renewables and strategic investors. Survey and roundtable participants represented multiple geographies – primarily North America, Europe and the Middle East.

"The approach to energy transition investment in the energy industry is moving from aspiration to moderation," said study coauthor Franco Ciulla, Managing Director at L.E.K. "Companies that were previously looking closely at new technologies and extensions are now saying, 'we're going to use that money better within our core." That means optimizing production operations, resuming drilling programs and greenfield developments when economically and environmentally feasible, expanding gas and LNG infrastructure networks, or upgrading refining and petrochemical capacity where demand justifies it.  

The authors cite ExxonMobil's agreement to buy Pioneer Natural Resources and Chevron's plan to acquire Hess Corp. as markers of the refocus on fossil fuels.

"Energy firms have emphasized core operations and tempered investment into emerging energy technologies due to high interest rates, energy security concerns and strong demand and prices for hydrocarbons," said coauthor Amar Gujral, Managing Director at L.E.K.

The top sustainability solution for the oil and gas industry – listed by 25% of those respondents is decarbonizing their own operations (i.e., reducing scope 1 emissions), and the energy transition technologies that are a focus are technologies that would enable re-purposing of existing infrastructure: 39% said carbon capture and storage is an energy transition technology they may invest in over the next five years, and 39% said hydrogen technology may be a target. About a quarter (25%) named renewable fuels and 17% named electric vehicle (EV) infrastructure as potential investment targets.

"While many energy companies are shifting their current priorities when it comes to energy transition, it certainly isn't ending. Energy transition is a 'when,' not an 'if.' But at this point in time, oil & gas companies, in particular, are finding it difficult to invest in new technologies and projects and are thus focusing more on decarbonizing existing infrastructure and operations," said report co-author Rebecca Scottorn, a Managing Director at L.E.K.

Notably, oil and gas companies foresee increasing the proportion of their investment budget spent on decarbonization to grow to 26% in five years compared with 21% today, according to the study.

The study notes that proven renewable technologies – specifically solar, wind and energy storage systems – that already have significant infrastructure will continue to grow at a healthy rate and receive significant investment from the overall energy sector, including oil and gas, electric utilities, renewable technology companies and their investors. Half (50%) of energy executives overall said solar power is the renewable technology they're most likely to invest in over the next five years; 33% said energy storage systems; 29% said wind and 27% said hydrogen technology. "The relatively low response for wind may reflect recently announced project delays and reconsiderations in the offshore wind market, for example Orsted and the Equinor empire project," Gujral said.

Utilities executives said their companies plan to invest primarily in expanding their demand-side management solutions that reward consumers who utilize solar and energy storage or reduce usage during peak demand times. In addition, they are focused on EV and grid-scale solar infrastructure.

"After a couple of years of energy companies trying new things and paying closer attention to the sustainability dialogue, we're in an environment whose dynamics are making energy players putting more money back into oil & gas development -- and comfortable communicating that to the public. The major, integrated energy players still believe in new energy technologies but are now taking a more discerning approach to capital deployment – they are increasingly sharing risk with specialized companies to take up that challenge," said Gujral.

About L.E.K. Consulting
We're L.E.K. Consulting, a global strategy consultancy working with business leaders to seize competitive advantage and amplify growth. Our insights are catalysts that reshape the trajectory of our clients' businesses, uncovering opportunities and empowering them to master their moments of truth. Since 1983, our worldwide practice — spanning the Americas, Asia-Pacific and Europe — has guided leaders across all industries, from global corporations to emerging entrepreneurial businesses and private equity investors. Looking for more? Visit www.lek.com.

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SOURCE L.E.K. Consulting