15 april
Does the global trend for clean energy mean that oil will lose its role in the foreseeable future?
At the end of last year, Houston hosted probably the largest event in the global oil and gas industry – the XXIII World Petroleum Congress, organized under the auspices of the World Petroleum Council WPC. The industry event, held every three years, this time did not become "protocol". The organizers offered the leaders of the largest players in the world market and representatives of regulators from many countries a program that allowed them to formulate a vision of the near future of the industry within the framework of the discussion.
The key conclusions that were announced during the congress are relevant not only at the global level. The most important idea uniting all participants of the representative forum is the inevitability of transformation for any country and any company.
Global changes
The global energy sector is being transformed. The volatility of markets, the ongoing impact of the covid pandemic, the shale revolution, the growing attention to the "green agenda" and, as a result, the orientation of industry to low–carbon sources and methods of energy production - all these phenomena in recent years have had a serious impact on the industry.
The transition to clean energy sources is becoming relevant in any country of the world. Investments in the development of hydrogen technologies are growing, electric transport is becoming more popular, and most countries are striving to reduce harmful emissions into the atmosphere. The most difficult conditions in which the world economy finds itself require the industry to ensure the reliability of supplies. At the same time, energy companies cannot but take into account their social role: they provide jobs for tens of thousands of people who will have to find places in the new energy sector.
Does the global trend for clean energy mean that oil will lose its role in the foreseeable future? Hardly. Yes, the demand for it as an energy source will decrease, but nothing is yet able to replace black gold as the main raw material for chemical production. But in any case, the industry will have to solve common tasks of unprecedented scale.
Challenges for the oil and gas industry
The first of these tasks is the implementation of joint technological initiatives. Today it is still impossible to draw up an exhaustive roadmap for the technological development of the oil and gas industry. But three directions already stand out clearly.
The first is the problem associated with CO2, the so–called CCUS (carbon capture, utilization and storage), the process of separating coal dioxide from industrial and energy sources, its transportation and storage, which excludes emissions of this gas into the atmosphere. The issue of using CO2 for injection into oil-bearing horizons both to increase the flow rate of wells and the use of depleted deposits for CO2 storage. Adjacent to it is the task of reducing methane emissions in the process of oil production and refining.
The second direction is the digital transformation of the business of oil and gas companies. It passes extremely unevenly. About 30% of the global market participants are actively developing these processes, while the rest are not paying enough attention to digitalization yet. In part, this repeats the situation associated with the spread of cloud technologies, when about 20% of companies became the "shooters" of change.
Finally, the third challenge that the industry is already facing today is the development of personnel. Players such as BP and Petronas have already announced large–scale investments in the development of new skills of their employees - these global giants are preparing personnel to work with solar and wind energy. And industry workers are taking these initiatives: according to Accenture, up to 17% of the staff of companies (not only energy, but also engaged in technology development) are interested in developing their key skills.
The complexity of these tasks is largely determined by country characteristics. Many companies operate simultaneously in the markets of many countries and face the need to comply with different regulatory requirements. The same can be said about the mentality of both the management of the players themselves and consumers. But these challenges are already relevant all over the world, and the only question is how quickly they will make themselves known in different local markets.
Nevertheless, these challenges determine the key trends in the oil and gas sector.
Innovations in the energy sector
The first of these trends is the technological development of energy through innovation. In this area, technologies related to various initiatives are also highlighted (the already mentioned CUS, solar generation, construction of wind farms, the use of biofuels and the development of hydrogen technologies).
The transition to innovative development is becoming much more complicated due to changes in the global market: raw materials are becoming scarce, and today it is no longer oil traders who are looking for buyers, but consumers are lining up for every barrel. Therefore, the initiatives of the world's leading players who invest in green energy and technological development will become increasingly important.
However, no country in the world, including the leading economies, is capable of solving the problem of technological development of energy alone. The most important role in the innovative development of energy will belong to regulators who have the necessary tools that can stimulate the qualitative development of the oil and gas industry.
New oil refining
The energy transition and, first of all, the development of green energy will lead to fundamental changes in the field of oil refining. Today, its appearance is largely determined by the peculiarities of local markets. In Europe, the industry has suffered significantly due to high raw material prices. At some points, oil refineries even became unprofitable. However, in many ways, the effects of price fluctuations were offset by the integration of refining and petrochemicals.
Experts (and among them representatives of companies such as MOL Group Europe or Chevron Downstream and Chemicals) believe that the demand for oil distillation products will grow by 4-5 million tons per year in the near future, while the total capacity of European refineries is 30 million barrels per day. This suggests that further integration into the chemical industry is the only way out for modern oil refining.
The need for a tilt towards petrochemicals is also dictated by the economic situation: the coronavirus pandemic has led to a 20 percent (according to Chevron's calculations) drop in fuel demand due to a decrease in the intensity of car use and a reduction in air traffic. It is necessary to note another important role of the oil refining industry. It has become an ideal testing ground for working out scenarios of digital transformation of the entire oil and gas industry.
Accelerating digital transformation
This trend will remain dominant in the coming years. Artificial intelligence, machine learning, the Internet of things and big data will make possible the overdue changes in the oil and gas industry. Digital transformation has become necessary for any company. It brings such advantages to business as predictability in the operation of equipment, the possibility of multiple increases in the efficiency of capital expenditures, and the strengthening of human potential. Ultimately, the ability of companies to overcome difficulties caused by fluctuations in the price of oil and demand for it depends on digital transformation.
For example, Chevron uses digitalization to increase business flexibility. Technologies allow the global giant to scale its business, including oil production and refining, depending on the current situation on both global and local markets.
Over the past 20 months, the energy industry has done a lot of work to shape the future model of the industry. Today, digital information is "descending" to the level of individual players. This means that the main drivers of innovation are not experts or representatives of regulators. Managers and even ordinary employees of individual companies begin to play a leading role. The ability of enterprises at all levels to design changes and implement them in practice will depend on them – to transform both individual processes and the entire business as a whole.
Oil and gas companies do not always have sufficient competencies to form digital business models. But their role is no less significant, they will become centers that unite innovative work and make it continuous.
New Leadership
Employees' willingness to innovate and their initiative largely depend on the energy of leaders. This forms another trend in the oil and gas industry – the revision of the role of CEO. Heads of companies have no other chance but to actively participate directly in experiments. Modeling new processes together with their teams, they actively influence all subordinates and involve them in the transformation processes as their direct participants.
Qualitative changes in teams play an important role: they not only stimulate innovation, but also reduce the risk of making erroneous decisions. The heads of companies of the new formation allow them to inventory corporate experience, identify ways to develop staff competencies by attracting new specialists and retraining old ones. In the end, they themselves experience a qualitative change, turning from managers into leaders.
Of course, the transformation of the industry will have its own characteristics, depending on the conditions of a particular region or country. But in any case, they will be relevant everywhere, for any company. The oil and gas sector of Kazakhstan, with all its features, is developing in accordance with global trends. And there is no reason to doubt that the phenomena discussed at the WPC-2021 will be relevant for the market of our country.
Miras Kassymov, Director of Accenture Development in Kazakhstan