DNV’s 2026 Energy Transition Outlook (released Oct. 7) notes that energy-importing countries are scaling clean energy three times faster than exporters. The share of non-fossil energy in importing region’s primary energy mix increased by 2.2 percentage points over the past 5 years, compared with 0.7 percentage points in exporting regions.

This is taking place against the backdrop of disruption to traffic through the Strait of Hormuz, which has reinforced governments’ determination to reduce dependence on imported oil and gas. DNV’s new forecast sees the Middle East supplying around 40% of global oil production in 2050, versus 50% in last year’s outlook.

Prolonged conflict would permanently reduce fossil-fuel demand, DNV notes. If the Middle East conflict continues until 2030, global oil and gas demand would be 4-6% lower while it persists, and 2-5% below DNV’s main forecast for the remainder of the forecast period.

Oil & Gas Journal head of content Chris Smith spoke about the report with its lead author, Sverre Alvik, director of energy transition research at DNV. Their conversation follows.

OGJ: Energy security is becoming a major driver of the energy transition. The DNV outlook found that energy-importing countries are scaling clean energy three times faster than energy-exporting countries. From the perspective of an oil and gas operator, what is the most important implication of that divergence?

Alvik: I think it's important to realize that the customers of the oil and gas business are, longer term, trying to avoid being dependent on that commodity. If you're exporting oil like the US or Norway or Canada or Brazil or Saudi, your key strategy is to meet the shortfall of Middle East oil and gas as much as possible. But for the importer, both the vulnerability of the supply chains and the price hikes, as well as the attacks on the infrastructure, are demonstrating how vulnerable you are when you are importing any sort of critical commodity to your country, like energy is.

And on top of that, you have the industry. If you have a large renewable industry, you would like that to grow. China is the best example. If you have a large oil and gas industry, you would like [that] to grow. The US is a major example of that. So, there are diverging interests leading to diverging results between importers and exporters, and this is clearer than ever.

OGJ: Definitely. The Strait of Hormuz is a big part of what's put energy security back at the center of the conversation. Do you think the current disruption represents a temporary shock to energy markets, or could it fundamentally change how governments and companies think about their exposure to imported oil and gas?

Alvik: I think it could fundamentally change. The same way as the Russian attack on Ukraine dramatically changed how Germany, or Poland, or other countries were looking at natural gas. The Asian countries [would be affected] first and foremost, but it’s also a new reminder to Europe on the vulnerability of both oil and gas.

Earlier, we were probably thinking that oil was less vulnerable than gas because oil is transported with ships and ships can sail wherever in the world, right? No, they cannot. And because you closed Hormuz and are still threatening it, suddenly it's a challenge not only for gas, but also for oil.

So, I think there is a potential to fundamentally change the way of thinking. Admittedly, people can forget again. If the Hormuz crisis is over and in a few years prices are back $50/bbl or whatever, then some people will forget. But some people will not forget.

In order to be less vulnerable, China and Japan now have proven that having larger [emergency] reserves is an effective approach.

OGJ: And for oil and gas executives, this creates an interesting paradox in that geopolitical instability can support near-term demand for hydrocarbons, while simultaneously strengthening the long-term case for alternatives. How should companies think about that tension when making long-term investments?

Alvik: I don't think they are, to a large extent, yet. I mean, when we look at the discussions with oil and gas executives happening at the moment, my impression is that there are few doubts from their side that there will be a continued very strong need for their commodities for a very long time, and probably they are right.

We have done sensitivity tests and tested “what if the war lasts for 4 years?” We don’t see dramatically higher prices than today, meaning $100/bbl, and the consequences are clear, but not hugely dramatic. We have an around 3-5% decline in a long-term oil demand if, in addition to what we see now, the conflict was to last for 4 years.

So, that's not dramatic because the depletion of existing oil fields and gas fields is much stronger than that. Prices, of course, will be very much influenced if you have 5% lower demand and would influence profitability over the long term, but I cannot see that this is largely influencing discussions at the moment. It's more, “while Middle East supplies are constrained, we need to produce more.”

OGJ: Are traditional energy demand forecasts and price assumptions sufficient then, or do companies need to plan around a much wider range of scenarios?

Alvik: Yeah, I think they need to plan for a wider range of scenarios, especially on the national level. You will plan for another type of Hormuz crisis. Even though it’s open, it could close again another time. Or you could close other straits or waterways or attack other energy infrastructure. So, on a national level, you clearly see that resilience concerns are making them plan for a much wider range of threats. And on a company level, I think this will broaden the considered scenarios as well. It's not a given that you have free sailing around the world and free transport; the stability that we have benefited from for decades.

Hydrogen, CCS

OGJ: Turning to hydrogen and CCS, a portion of oil and gas companies have already begun investing heavily in both, at least partly because these technologies appear to offer a way to preserve existing industrial capabilities in a lower-carbon energy system. Does the slower-than-expected deployment of these technologies change that strategic rationale? Or does it just slow it down?

Alvik: The main change is the slowing down, I think. European oil majors, which probably are the ones who were most forward leaning in diversification out of oil and gas and into hydrogen and similar things, are taking a step back. They're not abandoning their plans, but they're scaling them down. Of course, if there is little market for the new commodities, then investors who are used to very good returns, can’t see that the new business can contribute at all to that return for the foreseeable future, and hence asked the companies to slow down their ambitions, and this is happening.

Hydrogen is an example. Some of the sectors that, a few years back, we thought would be hydrogen, like trucking, we now think are much more likely to be electric. There're already so many more electric trucks than hydrogen trucks available for offer. Wherever you have to compete directly with electricity, you don't succeed with hydrogen. But that doesn't mean that there is not still room in other sectors where there is no possibility of electrifying, like aviation, shipping, and steel production. For those, it's not canceled. But it is delayed.

We already use 100 million/tonnes year (tpy) [71-73 million tpy between fertilizers and refining]. And meeting [growth in] that demand is probably a better opportunity than green aviation, which will take a decade or more before it scales.

OGJ: For an oil and gas company making capital allocation decisions today then, what does a transition-ready posture actually look like? Is it primarily to do with lower emissions and lower operating costs? A shorter payback period? Or is there something else they should be pursuing?

Alvik: As we started with in this discussion, you now have the energy security driver for importing countries, and that’s taking over as a stronger driver than reducing emissions at the moment.

OGJ: There’s a tendency to frame energy transition as a competition between fossil fuels and renewables. Is that still the right way to think about it from an operating company's perspective, or is a more useful question determing how different energy sources will coexist?

Alvik: Sometime, whether that's in 2050 or 2080 or 2180, you will have to stop using fossil fuels or you will need to capture all the carbon from it. Because as long as you emit CO₂ into the atmosphere, there will be continued temperature increase and that needs to stop one time or another. So, I think coexistence is something we will live with for many decades. But ultimately, it's not a matter of coexistence. It's a transition away from.

Future decisions

OGJ: Sitting in the CEO's office of a major upstream, midstream, or downstream company today, what is the one assumption about the energy transition that, you would be most uncomfortable putting into a 10- or 20-year business plan?

Alvik: The most uncertain factor in the transition is energy policies. They can change overnight. So, looking at alternative energy policies and how they will influence my business case is clearly important, and that's both in producing countries and purchasing countries. And then, what can happen in the competing technologies…

Storage is very interesting. We have had enormous progress on battery costs and battery deployment. But that hasn't happened on the energy density side. So, if you got a revolution on energy density with solid-state batteries and you suddenly could get to store energy, not only at a low price, but also as a very high energy density, then that would revolutionize the way we use energy. You could have continuous solar you could store overnight. So it could dramatically change the market if you had a revolution on the storage side.

OGJ: What do you think oil and gas executives are most likely to get wrong about the energy transition over the next decade?

Alvik: Its very typical of technologies to start a little slower than you think but then happen much faster than you think. When it comes to electric-vehicle uptake…I think it's tempting to sit and think that that EVs will not influence the purchasing base for various commodities for a long time. It certainly will come much faster than you think. Because the efficiency of an electric engine is so superior to that of a combustion engine. So, it's only a matter of time, whether it's in 2 years or 5 years or 8 years. This will come in all countries.

It's probably also coming in trucking. Trucking is catching up with passenger vehicles because truck operators are better able to calculate total cost of ownership and not only purchasing price. So that would be something I’d watch closely as an oil and gas executive.