In the new millennium a multi-polar world has emerged, spurred by rising demand for energy in emerging markets, the growing influence of National Oil Companies, and their control over the majority of the world's hydrocarbon reserves, and the impact of unconventional sources.
Research by Accenture, surveying a number of global industry experts on the subject of "Understanding the Future Energy System", has shown that the 10-year period from 2010 to 2020 will continue the theme of transformation along a number of dimensions.
Changes to the energy mix are occurring faster than expected driven with:
- The end of "easy oil and gas"--exacerbated by the 2010 Macondo Gulf of Mexico oil spill, which will have lasting effects in the context of exploration risk, regulatory review and increased costs.
- The rise of gas--principally shale gas, coalbed methane and liquefied natural gas, with the potential emergence of a global gas market.
- The continuation of security of supply concerns--helping to overtly politicise the industry.
- The growth of renewable--becoming an increasing part of the energy mix, spurred on by concerns over climate change and driving investment in sustainable energy.
Emergence of six themes
Accenture's business footprint of more than 150 energy companies across six continents has allowed us to discuss first-hand with our clients the challenges they face as they manage the impacts from the recent recession and grapple with a post-Gulf of Mexico industry ecosystem. The result of these discussions has been the emergence of six common themes.
1.Rebalancing asset portfolios:Rebalancing and the pursuit of flexibility is about maintaining a portfolio of options and knowing which to scale up and which to shut down--and when. Portfolio rebalancing and the pursuit of flexibility are expected to continue as the mix of energy solutions evolves. However, we believe the energy world of the future is an "and" and not an "either/or" world in terms of primary energy sources.
2.Capital allocation and management:The quantity of infrastructure spent that has been announced in recent years is staggering. Domestically and abroad, costs, risks, procurement, communications, quality, knowledge resources and time must all be managed as a unified programme with the appropriate governance model. Developing a superior capability in managing multiple complex capital projects will be a must-have for energy companies seeking to ensure delivery of future business value.
3.Operational excellence and integrity:International Oil Companies are increasingly looking at the balance of their operating models and trying to match the need for global efficiencies with local responsiveness, with the emergence of super-global, super-local operating structures becoming the model of choice for many companies; A new role for the corporate centre; And a renewed focus on shared services and standardization. In each instance, the degree of change with respect to networks, standardisation and decision-making will need to take into account a particular company's circumstances. There will not be a single correct answer, but rather a range of options for companies to consider in designing the optimum operating model.
4.Cost management:While cost management is no less important to companies in the growing Asian market, the emphasis is different. Uncontrolled costs can restrict growth plans--delaying or even endangering future projects. And for National Oil Companies, balancing costs against national employment targets demonstrates the complexity of the task ahead. Winners will be those companies that have a management system in place that enables them to reach an optimum balance.
5.New energy value chain:At a time when the optimum future energy mix is still being determined, energy companies need to deliver energy today, yet prepare their operations for the energy value chain of tomorrow. From trading, to refining fuel slates, to retail offers, to the integration of clean energy sources--all aspects of the value chain are affected. The point is that even though the future is still uncertain, companies can and should be proactive participants in defining the new energy value chain.
6.Low-carbon economy:Increasing the sustainability of the energy system will require a combination of solutions. Renewables will need to play a larger role in the global energy mix, but for that to happen, infrastructure improvements such as construction of smart grids will need to be implemented, so the scale of the challenge should not be underestimated. Also, companies need to adopt a portfolio approach to managing their clean energy R&D investments until it becomes clear which technologies will win out.
Energy companies are experiencing an environment of change and an uncertain future energy system as they come to terms with new energy sources, increasing levels of regulation and an evolving business model. Nonetheless, we remain tremendously optimistic about the international oil industry. The technical, regulatory and socioeconomic challenges faced and met over the past 50 years demonstrate that the industry is more than capable of responding to the challenges ahead.
BY: Arthur Hanna, Industry Managing Director, Energy, Accenture