The Midstream Roundtable was led by Thought Leader Partner PwC
The Midstream Strategic Roundtable brought together representatives from IOCs, NOCs, independent energy players and investment companies to discuss and debate the growing criticality of the Midstream in maximising returns from oil and gas value chains.
The Roundtable host, James Thomas, Partner, Strategy&, opened the session by articulating the wider disruptions in the oil, gas and energy sector and the importance of the Midstream in responding to them.
The key points raised were that:
- The world is unquestionably in a period of transition, uncertainty and volatility in terms of its energy mix. However, hydrocarbons will continue to play a critical and fundamental part in that mix for the foreseeable future. As such, players in the oil and gas industry need to reinvent and reposition themselves accordingly.
- Oil companies – or, indeed, energy companies – oversee a complex network of producing, conversion and logistics assets that can stretch from the oil reservoir to the point of sale or destruction of the hydrocarbon molecule.
- For decades, the primary focus of oil companies has been crude production and to deprioritise anything that got in the way of that - gas was flared as a waste product; condensate was blended into the main crude stream to further bulk it up; shipping, terminals and storage activities were just a necessary part of getting the oil away.
- But things have changed, and will continue to change with the ever-growing strategic and commercial value of gas – it produces relatively clean power, or creates substantial value in petrochemicals, or acts as a new form of energy security in the form of LNG imports.
- A key enabler of maximising the value of hydrocarbon resources is investment in ‘midstream’ assets – those under-appreciated assets literally squeezed in between upstream and downstream that, in a world of tremendous supply and demand volatility, can give hydrocarbon planners, marketers and traders essential flexibility and agility to capture short-term opportunities and lock-in sources of demand. Participants then discussed some of the critical blockers and enablers of creating an effective, value creating Midstream, including:
Policies – it was noted the “the heavy hand of government regulation often falls hardest on the Midstream” as these assets – in contrast to upstream ones operated in remote areas – are often visible to the public and have direct financial impact on the end customers. Policy setters can also tend to look to the molecule-sourcing Upstream for input on new policies, rather than the customer-facing Midstream operators
Economic models, financing and risk – several participants recognised that the Midstream offers more diversity for participation, more diversity of models of financing and more diversity of risk profiles than elsewhere in the value chain (the technical and commercial barriers to entry are substantially lower in a product distribution business than they are in an exploration and development play or refinery project, for example). However, the diversity of perspectives in the room highlighted that the oldest and biggest players in the industry could probably learn a lot from the new business models and disruptive ways of thinking of the smaller, more agile new entrants
Digitisation - An interesting– and perhaps counterintuitive – area of discussion and consensus was on the inability of digital technology to really disrupt the Midstream industry – or even the oil and gas industry, at large. Despite being one of the first users of supercomputing, given that the oil and gas industry is about engineering, physics and chemistry, digital technologies can help the industry be more efficient, but the basics of finding, producing, converting and distributing hydrocarbons are unlikely to be fundamentally disrupted by digital innovations in any reasonable timeframe. That said, for Midstream, given its role in connecting sources and supply and demand, there is a critical and urgent need to increase the speed at which operational, customer and market insights can reach decision-makers.
Strategic focus on gas - Finally, the topic of portfolio focus was discussed. There was recognition from both international and national oil company representatives that Midstream generally, and gas and LNG specifically, have become increasingly prominent in the strategies or their companies. Whether that be for purely commercial reasons or state energy security reasons, gas is seen as a key bridge between a world run historically off liquid hydrocarbons to a future one powered by electricity.
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