BY Fraser Tennant
Industry megatrends, such as historically low commodity prices, are transforming the oil & gas sector with a challenging future the likely outcome, according to PwC’s New Energy Futures report published this week.
Recognising the uncertainty clouding the sector’s future, the report proposes a framework which evaluates four potential future scenarios that could help companies successfully navigate an increasingly complex and volatile global market over the next 5 to 15 years.
The four are: (i) the oil and gas sector evolves along current lines with limited government intervention; (ii) demand from energy consumers (retail & commercial) for cleaner energy drives the transition towards a low carbon; (iii) governments drive increased energy efficiency, expansion of renewable energy demand and accelerated development of disruptive technologies; and (iv) supply constraints are triggered through direct government action, such as implementing carbon legislation or withholding licences (e.g,. Shale, Arctic) or geopolitical disruption.
“Global demand for affordable, reliable energy will continue to grow for the foreseeable future, but there is a new longer-term backdrop, as the world transitions to a low carbon system,” said Viren Doshi, PwC’s Strategy& oil and gas leader. “Momentum to replace fossil fuels with cleaner energy sources is building, and oil and gas companies need to consider their futures in this context."
The report also recommends that companies across the oil & gas chain: (i) have a clear strategy and alignment with portfolio, decision making processes and capabilities; (ii) have an ability to be agile and resilient in uncertain times; (iii) have an innovative response to disruptive change using existing assets as well as technology, knowledge and capabilities; (iv) have a readiness to form alliances and collaborate across the supply chain; and (v) safeguard the social licence to operate by sustaining the trust and support of investors and wider stakeholders through increased transparency.
Jan-Willem Velthuijsen, PwC’s chief economist in Europe, believes that the recommendations will allow companies to “reassess their current strategy and plans, with implications for the operating model, partnering strategy, resourcing and technical capabilities and other areas".
Despite all the uncertainty and prediction of a challenging future, Mr Doshi is in no doubt as to oil and gas sector’s ability to innovate and adapt to a rapidly changing world: “Time and again, successful operators have demonstrated the ability to respond to challenges by taking a long term view, innovating, adapting and gauging major trends as they define medium-long term investment plans.
“We are convinced that they can do so again."