Innovation to transform energy's future
Digitalization enables oil and gas operators to transition to a new energy ecosystem
The realization that fossil fuels are a limited resource, however long supplies might last, and the growing awareness of the negative impact that their emissions have on the planet, has impacted every oil and gas major. Extreme weather conditions, such as those experienced during the summer of 2018, leading to heat waves, forest fires and torrential rainfall, all contribute to the urgency to improve the energy ecosystem.
These companies have now issued their own “energy transition” strategies that outline plans to migrate their core business to new energy sources between now and 2040. “It is important to stress that it’s the carbon dioxide and methane emissions that have a negative impact on the planet,” says Charles McConnell from Rice University and former Assistant Secretary of Energy. “Don’t hate the fuel, hate the emissions. We need to be developing technology that addresses these emissions.”
Regardless, there is a realization among the majors that their dependency on oil or gas as their main source of revenue needs to evolve. Nearly 70 percent of respondents to a Wood Mackenzie survey said investing in renewables to reduce carbon footprints was a more progressive pathway towards transforming the energy ecosystem. Over the past year, European-based oil majors that include BP plc, Royal Dutch Shell plc, Equinor ASA (formerly Statoil ASA) and Total SA have emerged as leaders in alternative energies investments, a strategy highlighted as a priority by 15 percent of the survey’s respondents.
In fact, BP’s annual review of world energy published in June 2018 revealed 17 percent of the world’s energy growth in 2017 came from renewable sources, the largest increase on record. New renewable energy installations were equivalent to the energy output of 69 million tonnes of oil – the annual energy consumption of Sweden and Denmark.What the oil majors also agree upon is that there is no single mix of energy sources that would be ideal worldwide. The energy transition is specific to each country or continent, with some advocating emission-free facilities, others opting to grow markets for hydrocarbons, while the rest aim to get people out of energy poverty.
“It doesn’t matter how you view the future, we have a responsibility going forward to harmonize our energy mix – whether it be oil and gas, petrochemicals or electric power – by providing access, affordability and environmental responsibility through technology,” states McConnell.Total is actively developing alternative energy sources, with a major drive into solar power and energy storage.
The $1.4-billion purchase of solar panel maker SunPower in 2011 helped turn the oil company into a major player in solar energy. Its acquisition in 2016 of battery-maker Saft reinforced this shift in strategy by propelling Total into the big league of companies offering solar-plus-storage and distributed-generation technologies2.Total actively develops alternative energy sources. Energy transition is a slow process, but the enabler is most definitely today's technology and future breakthroughs supported by radical changes in energy use by consumers.
In fact, in the Wood Mackenzie survey, 60 percent of respondents claimed digitalization should have a “major” or “transformational” impact on business and is expected to result in faster and better decisions, more production, fewer outages and reduced costs.
As the world demands more energy, it also demands that it be produced and delivered in new ways, with fewer emissions.According to the president of ABB’s Industrial Automation division, Peter Terwiesch: “Oil and gas companies working in collaboration with their supply chain have the ability to make an impact on the world, bringing power and light to remote locations, improving energy efficiency, reducing raw material use, and running the world without consuming the earth.”
For many years the oil and gas industry has confronted many diverse challenges, whether that be between onshore and offshore, different geographies or national versus international oil companies.
As the industry looks toward transitioning to a different energy mix, adding to these challenges will be local versus global energy policies, the reliance on oil and gas for national budgets and employment, the skills shortage and the uncertainty over oil and gas prices and demand. It is forecast that the shift to renewables, along with the emergence of electric vehicles, could lead to profits of $65-$70 billion migrating from oil and gas companies to the broader energy ecosystem. Upstream players stand to be most at risk, with approximately $60 billion3 of their profits potentially migrating to this broader ecosystem.
However, this shift is expected to benefit the environment, with a potential reduction of 900 million tonnes of CO2emissions3. Another positive is that an estimated 35,000 jobs will be created, as generation from renewables tends to be more people-intensive than that from fossil fuels. There are many trends accelerating the introduction of new energy sources and delivery platforms into the global energy system.
Global population growth brings new expectations and requirements .By 2025, the population born in the early 1980s to early 2000s – commonly known as millennials – are expected to make up 75 percent of the global workforce. They bring with them their own expectations about technology, collaboration with colleagues, the pace of work and accountability. The impact of this generation can be felt today. They are already enthusiastically embracing the sharing economy as witnessed by new digital business models providing efficient solutions for transportation, accommodation and food delivery. This, in turn, is leading to greater use of assets such as shared vehicles.