Struggling with the energy transition? How to Get “Beyond the Barrel”
For the foreseeable future, going “beyond the barrel” will really mean maximizing the returns per barrel and applying a sizable portion of those gains to the development of low-carbon and negative-carbon energy and energy.
With oil and gas prices rebounding, now is a good time to invest in the low-carbon future that the energy industry is already embracing. Energy companies such as Exxon, Shell, BP, Oxy, Suncor, TotalEnergies, Saudi Arabia and many others have deployed low-carbon or zero-emissions initiatives, and the availability of capital, massive scale and a vast wealth of expertise that they and others can tap into bode well for their success.
Renewable energy generation (wind, solar), alternative fuels (biofuels, hydrogen) and carbon reduction approaches such as direct air capture and carbon capture, utilization and storage (CCUS ) get a lot of attention. What tends to slip below the fold is the extent to which the success of the energy transition will depend on digital transformation.
After all, the term “energy transition” is really just shorthand for diversifying into adjacent industries and sectors such as utilities, solar and wind, and energy storage. With the possible exception of the nascent energy storage business, these are not entirely new opportunities. Energy majors bring scale and financial and human resources well beyond that of all but the largest investor-owned utilities, but they will need to be strategically savvy, tactically sharp and efficient. operationally to 1) be competitive in the short term and 2) build and operate in the long term the massive infrastructure needed to help power a fleet of largely electrified vehicles or capture and sequester enough carbon to enable continued widespread use of fossil fuels.
All of this raises questions for energy executives. How best to invest and manage a more diversified product portfolio capable of generating future returns similar to those the sector has historically enjoyed, or better returns? How do you respond to the customer’s desire for more accurate and responsive service levels? How do you optimize the hydrocarbon value chain – and now, the carbon value chain – to manage a portfolio of profitable products and emerging offers with agility?
Let me approach these questions from three angles: capital planning, asset management and operations.
Capital planning wasn’t exactly easy in the traditional oil and gas business. But if you spent a dollar to upgrade a refinery or build a new one, the return on investment was a known quantity. This has changed. If you’re spending a dollar on a renewable resource, CCUS, or retail, the return on investment is less clear. The good news is that pressure from ESG/sustainability concerns and investors has lowered the projected return now required to justify a renewable investment to just 3-5%. It is compared to 20% to justify a new long-cycle oil project. But it can be difficult to sketch out the real yield of renewables. How to make the image clearer?
You need a holistic view of your assets, for one thing. What do you own? What did you spend on it? Is it running? For how long? Does it need maintenance? Should you replace it before the end of its life or let it run until its end of life? How are you leveraging oil and gas revenues to grow renewables, CCUS, retail or other businesses of the future? What will your supply chain look like with biofuel refineries, solar farms and wind power or other facilities being part of the production mix?
Many of these questions have long applied to oil and gas capital planning. But as energy companies diversify, they become more complex. Additionally, a deeper understanding of its existing assets and more robust modeling and forecasting capabilities become more important given the shallower experience in these new investment areas.
The good news here is that the Internet of Things (IoT), machine learning, blockchain, and other technologies are enabling huge advancements in asset management. The timing couldn’t be better, because asset management is what will help you operate efficiently and profitably in your existing business as you manage the introduction and growth of renewable energy, biofuels, hydrogen, CCUS and other emerging companies. It’s about maximizing your resources, whether it’s dollars or people. You can’t do this without an accurate, real-time understanding of what those resources are.
Harnessing the best in asset management can also mitigate the impact of the wave of retirements from the energy sector. Consider the experienced refinery engineer who can detect brewing problems by the subtle change in the sound of a machine. When she retires, you’ll probably need automated sensors to eavesdrop on whoever’s replacing her. Moreover, the skills of this engineer will probably not translate to a wind farm. To understand the talent you need, you need to intimately understand your strengths.
Automated asset management has other benefits, perhaps foremost the ability to support predictive maintenance and forecasting. The convergence of IT and operational technologies with machine learning and prescriptive operations and maintenance can enable better asset intelligence. This can apply both internally and in cooperation with OEM and external engineering specialists. Real-time asset monitoring, based on critical values and trends, enables effective asset maintenance strategies and better cost, risk and performance management. Additionally, this wealth of data can inform the design and operation of new and better assets in the future.
Such automation blurs the lines between asset management and operations, especially on the maintenance side. But it also enables operational agility that not so long ago would have seemed gimmicky: think personalized offers from live order and inventory management and performance-based pricing. IoT and machine learning will enable real-time visibility into everything happening in your business. Its distillations will serve directly to support and improve the choices of everyone, from line managers to senior executives.
This information will help ensure profitability while maintaining quality of service across a wider range of services and modes. Consider the example of integrating IoT pipeline gauge data related to a specific customer’s product. Suddenly you have real-time tracking and the ability to adjust remotely. This not only helps you optimize your operations; it can also build customer loyalty.
Automating operations in this way also shifts routine staff tasks to systems enabled by machine learning and artificial intelligence, freeing up capacity for higher value tasks and, ideally, opening up the headspace needed to define and pursue further operational improvements and exploit new market opportunities. to serve new and existing customers.
Energy companies that put customer experience at the heart of their strategies while combining once-siloed processes, smart technologies, and real data from operations, customers, and partners will be best positioned for the ongoing energy transition. Achieving this will require a digital transformation capable of delivering comprehensive insights into operations, products and services through real-time monitoring, integrated data sources, AI, predictive analytics and analytics capabilities. machine learning.
Getting past the barrel won’t be easy. But for forward-thinking energy companies — and the sustainability of a warming planet — it will certainly be worth it.