The world is in the middle of an accelerating energy transition as highlighted by the World Economic Forum’s fifth Annual Energy Architecture Performance Index Report (EAPI), developed in collaboration with Accenture Strategy. The way in which energy is produced, consumed and distributed is changing dramatically. In the future, the consumer will be more so at the centre of the energy system, empowered by complete transparency of information. They will have absolute freedom of choice as to from which sources they wish to draw their energy in real-time, based on their own balanced priorities across cost, sustainability or convenience. Also, supply options from both hydrocarbon and non-hydrocarbon sources are becoming abundant and competitive – the emphasis is, and should be, shifting toward affordable and sustainable provision of energy.
This future energy landscape is taking shape more rapidly in some countries than others. The EAPI report highlights how a select few countries are turning their sails to catch the winds of progress, while many are still struggling to get their energy architectures match-ready for the coming changes. Moreover, many of the world’s largest economies - and therefore largest consumers of energy - need to accelerate their efforts to embrace the opportunities in this rapidly evolving energy sector. To do that, these countries need to follow today’s leaders and get three things right:
- Frame and commit to the long-term direction of the energy sector
- Enable energy transition by developing adaptable policies
- Direct investment to the areas where it can have the greatest impact
These actions are also imperative for oil and gas companies. The unprecedented scale of changes taking place in global energy requires a transformational response from them too. Real change is needed not simply to secure the license to carry on business as usual, but to underpin their future economic survival. To achieve it, companies need to think now about where they should play and how they can win in the future.
Where to play
Oil and gas companies will need to reassess their portfolios across the whole energy value chain. That means picking and investing in the most competitive and impactful assets - this includes fossil fuels and non-fossil fuels, particular as there is more of the former from which to choose and the latter is also becoming more competitive against the traditional sources of energy. This will be important to secure and enhance margins and achieve the levels of energy affordability that is needed.
How to win
As the energy consumer moves to the center, oil and gas companies will need to transition from a provider-centric to a customer-centric business model. Getting closer to the customer may mean integrating further down the value chain to provide end-to-end energy needs or better reflect customer needs in planning and portfolio decision-making. These companies will also need to become adept at identifying geographies and customers that are most in need of access to affordable energy access and those that are likely to generate the economic growth which will, in turn, increase demand for energy.
Identifying where to operate will need to be accompanied by adopting the distinct approaches that will suit each market. That will mean helping to shape future policies and competing in these markets as they develop. Investing in the right resources will also be critical – and should include both energy-related and other local targets such as people and infrastructure. Operating models will need to become more tailored and agile in the face of continuing change. Further, companies will need to participate in the emerging ecosystems of partners that will characterise the transition to the new energy world. And they will need to invest in new digital technologies to support successful operations in this new environment.
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The time to act is now
These are not activities that can be mulled over and considered for long. And some operators are already making progress in achieving affordable, environmentally sustainable and secure energy systems. Companies are working with governments on the ground to promote policies and educate local populations about the benefits of energy innovations. We’ve seen partnerships form with governments that promote economic growth. For example, one of the operators worked with a local government to build an LNG export terminal that represented the largest capital investment and most complex engineering, construction and production venture undertaken in the country’s history, with the potential to double the country’s GDP.
Others are pursuing new energy technologies, and investing heavily in renewable sources, such as offshore wind or solar. They’re engaging with governments to support the development of policies aimed at reducing CO2 and participating in multi-stakeholder initiatives to address global environmental concerns. Some operators are establishing global leadership to expand energy access with technology and digitalization, and harnessing that leadership to create commercial solutions that meet critical needs. For example, one company is using innovative mobile solar technology to provide a clean and efficient energy source to one million previously unserved people in sub-Saharan Africa and Asia.
These initiatives send a clear message: the energy transition is happening now and companies need to take practical steps to secure their future in the new world for the benefit of themselves and the geographies within which they operate. This is not a topic to be left to governments only – it is time for oil and gas companies to join hands and act in equal measure.
The Global Energy Architecture Performance Index 2017 is available here. Explore the results of the report using the heatmap below.