The energy future has arrived


The energy industry is experiencing the dual shock of the COVID-19 pandemic and oil market disruption thanks to a collapse in demand and a surplus of supply. There are, however, other powerful forces at work reshaping the industry, including the shift to renewables and the convergence of the energy and power industries. Energy leaders cannot cling to the business models of the past, they must seize the opportunity and transform.

These powerful forces are unstoppable and transformational. The industry is moving away, some will say permanently, from hydrocarbons and toward renewable sources. Solar, wind, tidal, and geothermal energy will comprise more of the global energy mix. A more disruptive change will come in mobility from battery-powered electric vehicles that are already replacing gas- and diesel-powered cars. Then there is “green hydrogen,” which uses renewable energy to extract hydrogen from water through the process of electrolysis.

As renewables become more viable, the boundary between the energy and power sectors will blur. Traditional utilities will build and operate “refueling” infrastructure, either battery-charging or hydrogen-distribution stations. Consumers will expect an integrated energy experience, with interchangeable sources used seamlessly to power their homes, vehicles, and workplaces.

Simultaneously, environmental sustainability is exerting a decisive influence on the energy industry. Several of the world’s largest oil and gas players have pledged to shareholders to reduce their future net greenhouse-gas emissions to zero, forcing a substantive and rapid shift in their portfolios and investments.

The result is that these forces mean that changes that energy leaders expected in five to ten years are happening now. Organizations should therefore reorient their companies accordingly. Each segment of the industry must take a different path.

National oil companies (NOCs) need to protect future revenue. They must become stronger advocates for domestic decarbonization, as a means to improve their environmental stewardship at home and to maximize the availability of hydrocarbons for export. To extract the most revenue from their remaining hydrocarbons as global demand shrinks, NOCs should increase their investments in fuels trading, distribution and retailing, and other segments at the end of petrochemicals value chain.

As the lines blur between the energy and power sectors, NOCs should invest in solar- and wind-generating capacity for power. They should champion hydrogen as an emerging energy source for transportation. Rather than partnering with international oil companies (IOCs) for their technical energy expertise, NOCs can work with power and digital companies to support the reskilling of their workforce. Doing so will enable NOCs to meet all of the various needs of consumers—electricity at home, petrol or battery-charging for their cars, and any other energy need—through a set of bundled, integrated offerings.

IOCs must choose between being oil and gas specialists or energy leaders because areas of profit along the oil and gas value chain are shrinking. Hedging bets will no longer work. A handful of massive IOCs has long dominated the global oil and gas industry. They have the financial might to invest in technology- and capital-heavy upstream exploration and production. They possess the large-scale assets required to compete in downstream refining and petrochemicals. These strengths are no longer sufficient…

Source: Renewable Energy World