The Energy Industry, in the Words of Its Leaders
Posted October 9, 2018 10:23 p.m. EDT
In advance of the Oil & Money Conference in London this week, co-hosted by The New York Times and Energy Intelligence, The Times asked some of the participants to answer this question: What are the biggest challenges your industry is facing and what is your company doing to address them? Here are their responses, which have been edited and condensed.
Andrew Smart, global energy industry manager of Accenture
The biggest challenge for the oil and gas industry will be navigating short- and long-term disruptions. Companies large and small must make their production businesses even more competitive, while simultaneously creating opportunities for material growth based on future demand.
As the global industry recovers from the 2014 downturn — one of the deepest in memory — it is at a crucial inflection point. While decisive leadership and restructuring was needed to survive, few can be confident that they transformed sufficiently to thrive in the cycles ahead.
The industry is holding its breath to see where cost savings can be sustained as prices and activity levels rise. At the same time, major companies now understand that the fundamental changes, required to capture the full value of digital technologies, still need to be made. This will require a shift from simple deployment to more wholesale transformation.
Crucially, now is the time to address the gradual but relentless disruption that continues to change the balance of supply and demand. Industries we serve — power, transportation and materials manufacture — are being disrupted by new technologies, regulations and customer behaviors. Having spent decades obsessed with finding new sources of supply, we must now enhance the understanding and expertise that’s focused on capturing demand.
There are any number of strategies to navigate these uncertainties. Transforming core operations to maximize investment capacity is crucial, as is setting intelligent strategies for the future. Additionally, companies must ensure that investment capacity is allocated deliberately between these core and new business options. This will require a wise pivot by the oil and gas industry, balancing capital, capability and risk allocation to create options for sustained success.
Indeed, oil and gas companies may find themselves spearheading a new petrochemical revolution; competing head-to-head with utilities in efficient, highly distributed power generation; or even creating new ways for consumers to access and use energy.
The industry’s future will be volatile and highly uncertain. Companies that survive and, ultimately, thrive have no time to waste. In an industry where demand is set to become the scarcer commodity — particularly in mature markets — an intimate understanding of unmet customer needs could just be the most potent “proven reserves” of the future.
Michael Wirth, chairman and chief executive of the Chevron Corp.
Few doubt that energy has improved lives and enabled human progress. Yet one of the biggest challenges facing the world is the polarized debate over the future of energy. Facts and economics are too often replaced with assertions and emotions.
Discussions about fossil fuels and their alternatives often degenerate into a battle to delegitimize the other side. This is a recipe for inaction. This struggle hinders compromise, slowing the transition toward cleaner energy. And it keeps billions of people trapped in energy poverty: Almost 40 percent of humanity, or three billion people, have access to only rudimentary forms of energy and a very low standard of living. The world expects — and deserves — better.
The International Energy Agency projects energy demand will rise more than 25 percent by 2040, driven by population growth and rising incomes. Oil and gas will meet about half of that demand; a prediction that holds firm even in the most aggressive low-carbon scenario.
The world needs a wide range of energy sources to accommodate growing demand while reducing energy poverty. Yet, a polarized energy debate prevents billions from realizing the liberating potential of affordable, reliable energy.
I’d suggest a new, more balanced conversation about the future of energy that rests on four principles:
— An understanding that energy transitions happen at different paces in different places. We shouldn’t expect universal solutions to unique challenges. What’s happening in London or Boston isn’t necessarily the answer for Beijing or New Delhi.
— The recognition that the global energy system is complex. Providing reliable, affordable and ever-cleaner energy to a growing population requires massive investment and innovation — and a rational policy environment.
— An agreement that cleaner solutions are required, but they must also be reliable and affordable.
— The realization that meeting the world’s energy needs will require a diverse mix of sources. This means embracing different forms of energy and looking for opportunities to scale cleaner energy faster.
These principles can guide us toward a more productive conversation about energy. And they can help us unlock the benefit of reliable, affordable, ever-cleaner energy to power the world forward.
Carlos Treviño, chief executive of Pemex
The oil and gas industry is in an uncertain time, particularly when it comes to meeting growing demand. There is no doubt that the demand for energy will continue to increase at an accelerated rate, but experts continue to debate the sources of future energy. From my point of view, the world’s main energy sources will continue to come from fossil fuels — mainly hydrocarbons, at least for the next 50 years.
An element that makes this scenario more complex is that the industry must reach a balance between supplying the world’s growing need for affordable energy, while at the same time meeting society’s increasing demands and awareness of the environmental impact of fossil fuels.
Energy demand can be divided into three segments: the developed countries that account for the largest share, but at the same time are the most aware regarding the impact of oil and gas on the planet; the developing countries that require significant investment to rapidly satisfy their demand for affordable energy while dealing with pressure to manage their natural reserves; and the least-developed nations that rely on few energy sources, yet have the most rapid increase in demand.
Without doubt, environmental efforts by oil and gas companies should be an important component of their policies, values and principles. They should also be routinely evaluated as part of their investment decisions. Investment funds fully assess environmental, social and governance factors of corporate issuers in an integrated manner along with credit metrics, when undertaking any investment decision.
One cleaner energy source that will play an important role in the industry is natural gas. Large nations like China and India have announced that they will use natural gas as their main energy source. The next step for the oil and gas industry is to make natural gas production as profitable and accessible as crude-oil production and to engage with the transportation industry to develop economically accessible technologies.
The rest depends on making the switch from oil-driven to natural gas-driven economies, while maintaining the same levels of attractiveness for sources of funding.
Seifi Ghasemi, chairman, president and chief executive of Air Products
The industrial gas industry must continue to evolve and create innovative solutions that benefit the environment, enhance sustainability and address obstacles facing customers, communities and the world. This is the challenge everyone operating in the oil and gas industry faces today, and tomorrow.
More specifically, one of the largest issues to be addressed by the industrial gas industry is how to assist refinery customers in solving the challenges of IMO 2020, a stringent environmental standard facing the shipping industry on fuel requirements implemented by the International Maritime Organization. IMO 2020, which takes effect on Jan. 1 of that year, impacts the use of sulfur-heavy bottom-of-the-barrel oils for fuel. The elimination and disuse of these sulfur-heavy oils will decrease sulfur oxide emissions, improve air quality and protect the environment.
Working together we must find solutions to address the bottom-of-the-barrel oil issue and be able to do so in an environmentally sound manner. Gasification technology is one option to create beneficial uses for these bottom-of-the-barrel oils in a more sustainable manner. This is something that Air Products is already heavily investing in.
The core of how we approach business, now and in the future, must be sustainable operating practices. Strong goals and public sentiments may set the baseline for a company’s intent, but the genuine proof of a commitment to sustainability is demonstrated by results. We need to work with our customers, our suppliers and other key stakeholders to ensure an appropriate level of energy and focus continue to drive innovative technologies that will deliver efficiencies and improve the way products are produced.
Together, we have an obligation to protect and preserve our world for future generations.
Steve Pastor, president of petroleum operations of BHP
Oil price uncertainty and volatility is one of the biggest challenges facing our industry. Oil markets have always been exposed to boom and bust cycles, but the frequency and magnitude of price cycles may be more acute in the future.
Oil markets have tightened, spare capacity has declined, and geopolitical tensions are rising, all of which could cause oil prices to spike in the near term. On the other hand, despite tightening credit markets, capital remains relatively available and inexpensive, and unconventional participants in markets in the United States are quite agile.
Adding to the uncertainty are these conflicting scenarios: If prices rise rapidly, low barriers to entry and the very high number of onshore players in the United States could cause cost inflation. Meantime, new production encouraged by a surge of capital and activity will likely cause oversupply and depress prices. Physical oil export constraints in the Permian Basin in Texas will likely restrain near-term production growth rates, but growth in inventories of wells drilled and completed but not producing to their full capacity, and oil price hedging, could exacerbate a downturn once export capacity bottlenecks are removed.
To address oil price uncertainty and volatility challenges, companies will need to set their priorities using thorough market analysis and scenario planning. At BHP, we’re building a pipeline of options that are robust across the range. We have a preference for investment and operational oversight at early stages of access and exploration, as this affords us maximum flexibility to adjust to changes including market conditions.