Oil and gas: why we need a new innovation ecosystem
At InnoEnergy’s ‘The Business Booster’, leaders from Repsol, Equinor, GA Drilling, Total Energy Ventures and PwC gathered to talk openly about the capability of the oil and gas industry to tackle the energy transition. Reflecting on the discussion, the comments from all speakers would frequently come back to two intrinsically related themes: collaboration and capability.
The IEA’s latest World Energy Outlook 2019 is bleak: “The momentum behind clean energy technologies is not enough to offset the effects of an expanding global economy and growing population. While global oil demand is expected to slow from 2025, this does not represent a definitive peak. Whichever pathway the energy system follows, the world still relies heavily on oil supply from the Middle East,” the IEA writes. Furthermore, even as oil demand slows, gas demand is set to increase. Though cleaner alternatives like biomethane and hydrogen may play a role, this is largely driven by global expansion of LNG capacity.
It’s true that oil and gas production can’t just stop. While there’s a societal pressure to tackle climate change, there is a similar pressure to maintain or improve living standards, particularly in the developing world. There is perhaps a misconception that international oil companies (IOCs) have all the capabilities they need to tackle climate change, and that inaction is simply a result of a poor stakeholder value. But as one panelist put it, “We don’t have the solution hidden in a room,” and suggested that in fact most do want to be part of the solution. It’s a question of capability; the stumbling block is working out how.
An invite for solutions from ‘outside’
In this period of change, more IOCs are driven to review their portfolio against the challenge ahead, and as they do, the consensus strengthens. To fully engage in the energy transition, the industry needs a step-change which will not simply be achieved by investing more in well-proven technologies. The sector needs different options beyond today’s solutions and the rate of innovation needs to grow, fast. We need to explore hydrogen, second generation biofuels and carbon capture as well as imagine solutions that don’t even exist yet. The industry needs solutions from ‘outside’.
But promisingly, there is an ongoing influx of investment and entrepreneurs into the energy industry and innumerable paths are beginning to unfold that can all lead us to a cleaner energy future. If capability is an issue, partnerships with these entrepreneurs and startups can play a critical role in empowering the sector to be bolder and help them unlock the next steps on the path.
Those IOCs that have assessed their own capabilities are beginning to look ‘outside’ to partner with startups that can either bridge their gaps or complement existing skills. The general consensus in the room was that there aren’t nearly enough startups in the market to go around. So, if the industry wants access to these agile hotspots of innovation, it must invest in them and create an ecosystem that accelerates their development.
Despite a rich heritage in innovation, exploring alternative energy value streams was thought to be somewhat of a novelty for the industry, which itself has for so long focused on delivering the same oil and gas projects over and over, only bigger and better. At the same time, this ‘new’ need for innovation seems somewhat at odds with IOCs’ more recent profit-driven and risk averse manner, where some panelists suggested that technology is often pushed rather than pulled. Bearing that in mind, while Shell’s journey may be a leading example of how to become an integrated power player, not all can or should follow in its path, a panelist emphasised.
Collaborate! Or fail?
Companies like Repsol and Shell started their low carbon journeys 20 years ago, while other industry players only went as far as to address corporate social responsibility issues pertaining to the environment. It is only now that most companies are looking to proactively address the climate challenge ahead.
In 2015, CEOs of the world’s largest IOCs came together to launch the Oil and Gas Climate Initiative – which was to signal a major change in thinking and a humbling experience for those involved. Humbling because, despite their might, these companies had come to realise that climate change is too big of a problem for any one of them to solve alone. These are companies that thrive in complex mega-projects, staggering investments and venturing where no one else can. So, for them to raise a hand and say, “We cannot do this alone, can we work together?” was quite unique.
In response, the initiative has established the space to put aside competition. Together, the IOCs can investigate and invest in any technology that will reduce methane or reduce or recycle carbon dioxide. But, for an IOC to become a part of it is not a step that is taken lightly. It is to put aside that competition and to closely collaborate with one’s fiercest rivals.
Championing bolder steps
As the IEA says, all can help in tackling emissions – the whole energy value chain, from IOCs, utilities and technology providers to investors and banks, must champion innovation. While it may be some time before enough governments can truly ‘shape our energy destiny’, in the meantime investors can help the industry to take bolder steps. Rather than allowing IOCs to follow each other down well-trodden paths, investors have the power to underwrite and de-risk innovation.
At this stage in the energy transition, we need to create an ecosystem where more potential solutions can come forward and be accessible to a greater extent. Innovation is no longer solely the remit of engineers and working groups; a concerted effort that unlocks talent and inspiration is needed if we are to tackle the “deep disparities that define today’s energy world”.