By: Muqsit Ashraf, Global Energy Industry Practice Lead, Accenture
We all have heard of a “perfect storm”. This phrase has been used over and over to describe a point in time aggravated by a rare confluence of unfortunate circumstances. More than ever before, we can comfortably say that the energy sector today is in the midst of an unparalleled “perfect storm”.
The interlocking and mutually reinforcing circumstances bedevilling the energy industry now are so dangerous that we might need to come up with a more apt term than perfect storm. “Extinction-level event” got thrown around the other day, and it was not dismissed out of hand. I would not go that far because we cannot afford to jump ship: The world indubitably needs oil and gas, as it does renewable energy, to move forward.
What we are facing is not one storm but many colliding simultaneously at a time when the industry was already susceptible to disruption because of volatile commodity prices, high levels of debt, vulnerable supply chains, and lower financial returns due to chronic supply shock from resource abundance made acute by geopolitics, decarbonization-driven hydrocarbon demand facing gale-force headwinds, and a pandemic causing historical dislocation followed by a possible structural shift in how we live, work, and socialize. Underpinning these dizzying circumstances, energy consumption and hydrocarbon prices are becoming increasingly unmoored from economic activity.
The oil and gas industry has never been in this situation before because the concurrent confluence of these factors is new to human experience. The word “unprecedented” suffers from overuse because of its ubiquitous applicability, and despite the temporary OPEC+ production cuts there is no reason to think this storm will simply blow over. We are sailing without a reliable map and cannot even navigate by the stars. The oil and gas business has always been risky, but now we have more than profits at stake – how the energy industry will look like after this period of volatility is unknown. It is sink or swim.
To navigate these uncharted waters, the energy industry needs a new compass. To survive in an uncertain future, energy companies will need to transform themselves by undergoing nothing less than a fundamental reinvention that starts with purpose-led responsible leadership to improve sustainability, availability and affordability, as well as draw on their resilience by embracing the Six C’s:
- Competitiveness. Maximising volumes is out; maximizing returns and cash flow is in. Staying competitive requires shaping a resilient portfolio and operating model, including ways of working, that achieve positive returns through cycles.
- Connectivity. You have heard it before: Data is the new oil. The industry needs to move away from reactive, process-driven decision-making toward a data- and analytics-driven intelligent enterprise. This will require an integrated, scalable and secure enterprise technology foundation with end-to-end connectivity and optimisation capabilities.
- Culture. The energy industry used to be conventional, inward-looking and siloed. To survive, companies should rip up the floorboards and build a distinct purpose-led culture and employee experience with an emphasis on ingenuity, collaboration, and agility.
- Customer-centricity. Energy companies need to stop focusing solely on selling a commodity. Like every other industry, they will need to think about their customer’s experience and value proposition. To offer an exceptional and personalized B2B and B2C experience, and build customer intimacy, energy companies will have to rethink their overall design, services, commercial models, and formats and channels – in short, almost everything.
- Convergence. The industry will have to shift their focus from traditional oil and gas investments to capturing new cross-sectoral value pools, in particular, those adjacent to the hydrocarbon value chain. Electricity, hydrogen and biofuels are good examples. All of this will require the industry to step up its role and partner in the transition of sectors like transportation, power and heavy industries.
- Carbon. Sustainability cannot remain a pro forma box to check. The industry should transform and shift its investments, operations and products toward greener solutions, and manage its carbon footprint by putting sustainability and circularity as guiding principles for its reinvention.
Together, the six C’s represent a $100+ billion opportunity in FY21 and a multi-trillion-dollar opportunity over this decade. But to sail the six C’s, the energy industry is going to need a clear guidance in the storm. Over the next few months, Accenture will be laying out a foundation and offering an overview and practical advice to stay afloat while energy companies rebuild the ship.