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Page added on August 22, 2017
Peak Oil Demand: Time To Get Agile Or Get Left Behind In The Race To Low-Carbon Fuels
As low oil prices persist, global oil and gas companies are undertaking some serious self-examination. “Peak oil supply” concerns have been replaced by worries about “peak oil demand.”
Increasingly, the board room anxiety is not about whether, but when per-capita oil consumption might plateau.
Indeed, The World Energy Council’s earliest forecasts, in a report conducted in collaboration with Accenture Strategy, were for peak oil demand to take place around 2030 at between 94 million barrels and 103 million barrels of oil per day.
It’s interesting to see some oil companies taking the initiative now, rather than waiting for this scenario to play out, which shows the seriousness of the situation. Witness Total, which is moving to become a major supplier of electricity, starting with a new “gas, renewables and power” reporting segment, as it sees peak demand for oil on the horizon.
While forecasting oil demand and prices is always tricky, parties on both sides of the oil demand debate must acknowledge the impact of greater energy efficiency and resource substitution. Renewable energy sources such as wind and solar represent a larger and larger share of total energy consumed each year and oil-powered transportation will increasingly make way for Electric Vehicles (EVs).
Coupled with a slowing of global population growth, and the fact that, at a global level, energy demand has gradually decoupled from gross world product growth, due to a shift towards services and the maturing of demand in more developed countries, the environment is challenging to say the least.
There is clearly a race to balance competitiveness now with being relevant in a future characterized by low-carbon fuels and reformulated business models.
The World Energy Council, in its 2017 Issues Monitor, cited commodity price uncertainty (another way of describing low prices) as the number one “insomnia issue” affecting the decision–making of energy leaders. The key point here though is not what the floor or ceiling should be for prices and how long lower prices will last, but how to respond to the disruption that is well under way.
In the face of continuing low prices, some have cancelled or postponed capital projects and made other tactical cost cuts. But these steps may not be enough. The simple fact is that now is the time for these companies to move away from simple reduction of capital expenditure, take a long-term view of the future oil price and redirect their investments to the lowest cost production opportunities for the optimal payback.
We have seen a “production growth at all costs” mindset over the past 15 years, but successful companies going forward will need to double down on margins and value creation. They will be fast, agile collections of specialized units rather than slow, centralized behemoths. Otherwise, they will be left behind in the ongoing energy transition.
Different types of companies will have to take different strategic approaches. Large integrated oil companies can generate positive cash flow but tend to be less agile than smaller competitors. Smaller companies, however, need to find ways to generate sufficient cash to continue to compete in the increasingly challenging environment.
National oil companies, facing an increased risk of stranded assets, may wish to exploit reserves faster and develop alternatives such as petrochemicals, but they also face pressures to keep existing development programs in place to address political as well as economic concerns.
No matter the size or type of company, instability, uncertainty and change seem to be the lot of oil companies, at least in the near future. Nevertheless, all oil companies will need to develop hyper-relevant business models that naturally and proactively manage supply and demand positions to optimize the outcomes for the business.
Risk and optionality should be managed on a shorter time horizon than has been the norm, and driving down the total cost per barrel should become a day-by-day, hour-by-hour concern.
Demand for oil may indeed peak, but it will not disappear anytime soon. These companies have unique resources and capabilities which can serve them and their stakeholders well in the future demand environment. They cannot, however, afford to be complacent. They must adapt quickly to compete effectively in what is likely to be a very different world in terms of energy demand.
How? Accenture’s own research, as well as our experience with oil and gas companies around the world, points to three things that oil and gas companies should be doing right now to prepare for potential changes in demand:
1. Focus on quick wins. The key question is no longer the size of reserves but how quickly assets can be developed and brought to market. Companies need to concentrate on smaller nimbler, assets, which can be throttled back or shut down quickly. Modular production increases can be undertaken without a huge economic impact and can help companies cope with demand fluctuations.
2. Embrace digital disruption. Digital transformation in the oil and gas industry could, by our estimate, unlock approximately $1.6 trillion of value for the industry, its customers and society at large. Sophisticated platforms, intelligent automation, robotics, mobility, surveillance, connectivity and new storage technologies can help companies better address the ups and downs of demand.
3. Play to win over the longer term. Companies should be thinking about how to optimize the composition of their portfolios, looking at an extended energy supply curve that includes liquids, gas, renewables and other initiatives, and challenging and formulating business models that will create value in the future where oil and gas, utilities and transportation will begin to converge.
The new world of energy is more complex than ever, but if oil and gas companies better anticipate the change that is coming, they can successfully adapt and thrive.
Jean-Marc Ollagnier is Group Chief Executive, Accenture Resources
Forbes
6 Comments on "Peak Oil Demand: Time To Get Agile Or Get Left Behind In The Race To Low-Carbon Fuels"
bobinget on Tue, 22nd Aug 2017 4:39 pm
Lee Saks @Lee_Saks 2h2 hours ago
Lee Saks Retweeted Min. PP Petróleo
#Venezuela | Pres Maduro: received first shipment of wheat this week from #Russia. #OOTT
Russia/China/Iran/Venezuela. New axis of energy.
baha on Tue, 22nd Aug 2017 6:42 pm
Isn’t it amazing how fast the story changes. What will they be saying in 5 years?
Cloggie on Wed, 23rd Aug 2017 3:40 am
After Shell is Total the second European oil major to “discover” renewable energy. This is a direct result of the fundamental choice of the EU for a Total renewable energy strategy (pun intended).
Cloggie on Wed, 23rd Aug 2017 4:10 am
Total investing $80 million in Ghanese solar:
https://www.youtube.com/watch?v=_bVuqi1yk2I
Cloggie on Wed, 23rd Aug 2017 5:11 am
The commitment of Total to renewable energy goes deep:
https://deepresource.wordpress.com/2017/08/23/french-oil-giant-total-into-renewable-electricity/
The reorientation of companies like Shell and Total towards renewable energy is an event that will really shape the energy future, turning renewable energy into a new big business, backed as these companies are on a (European) political level and political willingness to factor in a price for biosphere degradation rather than seeing the biosphere as a free public sewer for all.
Kenz300 on Wed, 23rd Aug 2017 11:55 am
Smart investors invest in the future.
Fossil fuels are the past.