On the 11th February, Accenture hosted a Digital Roundtable in partnership with the Energy Council to discuss the direction and approach to decarbonisation within the oil and gas sector. Accenture’s team of Andrew ‘Billy’ Smart, David Rabley and Thomas Beswetherick presented Accenture’s latest report highlighting the potential for opportunities and risks whilst engaging in the energy transition and then led a discussion with twenty senior leaders from across the energy value chain.

With a global pandemic arguably accelerating disruption to the energy value chain, there is a sense that the oil and gas sector is facing an increasingly uncertain future. The key, Accenture argues – is to find practical and commercial methods towards decarbonisation, and this was certainly at the centre of the roundtable discussion.

Accenture’s business model is predicated on the ability to understand the nature of disruption and facilitate the necessary change thereafter, two core elements required to negotiate the process of decarbonisation whilst engaging in the energy transition. While the processes are complimentary, they require a difference in approach to achieve the ideal goal of net-zero emissions.

Disruption

The nature of disruption comes in two forms; the ‘Big Bang’ disruption – a sudden and significant shift in how nature or society operates. In the energy sector, this can best be seen in the Shale Boom or the Covid-19 pandemic. The second is a ‘Compressive’ disruption – a slow and gradual shift that consumes our way of being, exemplified in the energy sector with climate change. While the former enforces a rapid reconsideration of operations, the latter provides a buffer period in which to pivot. Timing in either circumstance becomes key to success.

Pivoting a successful business model in anticipation of future market conditions is as difficult as it would seem. There are few certainties that can guarantee continued success in a competitive and consistently changing market place, not least when there is a need to simultaneously maintain traditional operations while undergoing a structural transformation.

The Path to Success and Potential Business Models

The Accenture team laid out three paths to success for oil & gas companies;

• Firstly, if you remain committed to oil and gas production, then the onus should be to minimise emissions via the use of decarbonisation technologies within your operation processes.
• Secondly, utilise your access to capital and your expertise within the energy sector to pivot into the power sector, utilising renewables to power any existing O&G operations, effectively lowering emissions and developing new business lines.
• Thirdly, utilise your industry expertise to undergo a full-pivot into the renewable energy sector, such as Orsted has done.

Within these shifts, decarbonisation is the more pressing concern – how does industry navigate the immediate impact of emissions from their business models? Accenture frame this as a cumulative process with each action taken benefitting the end-goal of net-zero emissions.

It begins by ‘cleaning the core’, mitigating emissions by maximising efficiency of current infrastructure and value chains. It is the most immediate measure to successfully reduce a company’s impact on the planet as we await new technologies. This is followed by ‘accelerating the transition’; the process of replacing the carbon-intensive fuels of today with zero-emissions alternatives. Both of these models are in anticipation of ‘extending the frontier’ by scaling and commercialising future technologies, such as green hydrogen and CCUS, that will maintain a net-zero world.

Finding The Right Balance

Despite the demonization of the oil and gas sector, the sector has a significant role to play in driving the transition. This cannot be done without the input of sectors that are being transitioned, nor will it be a success if the technical expertise of the sector is not maximised to drive innovation.

Innovation will reveal itself across the energy value chain, from the direct emissions capture of EOR and CCUS technology, to the digitalisation of processes in order to maximise efficiency. Moreover, the expertise in developing global infrastructure, cooperative ventures and supply chains will be as necessary for renewable energies as it is for traditional sources.

Whilst it is easy to be caught up in the rhetoric of the energy transition, the capacity to generate and store renewable energies remains a significant limitation in ensuring a complete shift away from conventional fuels. While the ‘negative emissions’ technologies of CCUS, EOR or even planting more trees – are either not sufficiently scalable, commercially viable or effective in GHG reductions.

Undoubtedly, there are lessons to be learnt from past transitions; that like coal, a carbon-intensive fuel source can swiftly be made a pariah to new finance and investment. The same concern can be made toward LNG, which has enjoyed the status as the transition fuel – but is now being widely questioned due to the associated methane emissions.

The externalities pushing change within a compressed timeline of 29 years needed to reach net-zero emissions by 2050 – make this transition particularly unique. Financial and social activism has never been as pronounced and has ensured that capital constrains itself in seeking profit over progress in this field. However, if finance and investment restrictions are expanded, this raises questions over the future of the industry and how our current demand for oil and gas by-products will be matched by the supply of oil and gas.

Incentivising change from within industry requires coordination between national visions for the transition and the complimentary financial and/or investment frameworks to support these shifts. Concepts such as carbon tax provide little incentive to reduce emissions and the cost is often passed onto the consumer, while a market price for carbon needs to far exceed current prices to reach the functional market price of $100/tonne of CO2.

Another method is to ensure ESG principles are placed on financial and investment entities to limit access to capital to non-compliant companies. However, ESG principles do not conform the world over nor should they. The same demands cannot be placed on the underdeveloped countries that are placed on the world’s advanced nations, creating an imbalance in how to effectively implement change across regions.

Again, the pace of the transition becomes a stumbling block. How can these processes, ideas and technologies be effectively utilised whilst ensuring that consumers are protected from unrealistic prices?  One scenario in which a supply-peak oil is reached prior to demand-peak oil, could see crude prices rise as far as $200/boe.

A question raised by one of the roundtable participants was on this topic; how do energy companies assess the integration of value chains from a customer perspective. If the dissolution of the oil and gas sector continues, then what prices are consumers willing to pay for energy?

Cooperation and Collaboration 

One core agreement between our attendees and speakers was the need for cooperative measures to tackle the issue as an industry. Not only does this reduce the capex required to implement change, but also the knowledge sharing is key to uncovering the most effective solutions across a range of environments.

Big oil and gas players may also look to M&A opportunities in the renewables sector to directly lower portfolio emissions. Alternatively, junior producers may have developed progressive low emissions methods for extraction. Ultimately, though there was a belief that an industry-led push to reduce emissions and embrace the energy transition will be more effective and beneficial for all, far more so than a transition without the expertise of the conventional energy sector.

While some may wish to see oil and gas producers slowly fade from the energy conversation, pragmatically this would delay the transition and make the consumer face costly prices for energy access. As such, without the engagement and cooperation of the sector that has produced much of the supply of energy in recent history – the pace of the energy transition may slow even more.

Fortunately, the oil and gas sector is engaged and are making the moves, having the conversation and seeking the solutions to becoming more efficient energy suppliers. Industry pivots are likely; there will be some big successes and a few failures, but the consequences will be positive for all. Energy companies that are not just climate conscious in rhetoric, but who are reducing emissions and driving innovation forward, will ensure that we can scale and commercialise effective technologies sooner.

Whilst Oil & Gas companies may compete in the global market place, they have opened themselves up to a candid and cooperative conversation to better understand industry sentiment toward the energy transition. The O&G industry has a long history of joint ventures within their sector, now they need to reach out and make inroads in their own transitions with big plans, smart pivots and ambitious people leading the charge.