"While we have seen some very recent declines due to selloffs, these variations reflect persistent instability, and our survey findings confirm that we may have not seen peak levels on crude. Energy leaders tell us continued volatility will be driven by underlying issues such as regulation, geopolitical concerns and supply disruptions, as well as escalating energy demand," said John Kunasek, national leader of the KPMG U.S. energy practice, and executive director for the KPMG Global Energy Institute. "But the good news is that energy executives tell us they are significantly increasing investment in a range of alternative energy sources and see shale factoring strongly into meeting the world's future energy needs."
In fact, 35 percent of the executives surveyed said their company would increase R&D investment in alternative energy projects in 2011, up considerably from 15 percent in KPMG's 2010 survey.
Alternative Energy Sources
Shale gas/oil (44 percent) was most frequently cited by executives as the alternative energy source that will win the most significant investment, with nearly two-thirds (62 percent) expecting shale oil and/or gas to continue to have a transformative impact on meeting the world's energy needs.
Executives also cited solar (31 percent), wind (25 percent), clean coal technologies (17 percent), biodiesel (10 percent), and chemically stored electricity (batteries and fuel cells) (8 percent) as alternative energy sources that would see increased R&D investment.
"What is exciting about these findings is that it demonstrates the industry's intent to explore all options," added Kunasek. "Previously, the executives have pointed to wind and solar as the main investment choices, but this year we have seen a shift. Increased production of shale gas in North America could have profound implications on the global energy sector. Even batteries and fuel cells have entered the conversation."
Higher Capital Spending
In addition to investment in alternative energy, executives surveyed by KPMG say their companies will increase investment in their businesses, predicting capital spending to increase in 2011 compared to 2010. In fact, 33 percent of executives expect capital spending to rise by more than 10 percent over last year's levels; 17 percent project an increase between five and 10 percent; and an additional 17 percent forecast an increase of up to five percent. Sixty-nine percent anticipate operating costs will go up over the next 12 months as well.
A significant portion of the additional capital spending could be allocated to increasing human resources, as many of the executives (49 percent) expect their company's workforce to expand over the next 12 months – up two percentage points from KPMG's 2010 survey. One-quarter expect the workforce to increase up to five percent; 13 percent see increases between five and 10 percent; and 11 percent think their company will expand the workforce by more than 10 percent.
"Executive expectations for capital spending and hiring are very positive indicators for the energy industry," said Regina Mayor, oil and gas sector leader for KPMG in the U.S. "After several years of lower investment, companies appear focused on transformation and innovation, despite the significant regulatory and economic risk factors they are confronting."
Offshore Exploration and Production
Interestingly, despite the amount of attention the measures received, 68 percent of executives surveyed by KPMG say the regulatory restrictions resulting from the Gulf of Mexico incident have had no impact on their companies' offshore exploration and production efforts. However, 12 percent said their companies have increased emphasis on nontraditional explorations such as shale, and 10 percent have increased onshore drilling. Eight percent say they have shut down U.S. rigs and moved to other geographies; and another eight percent say regulatory restrictions will have little impact on long-term development of offshore reserves but have improved exacting drilling practices.
