Ahead of the 2023 ASUG Best Practices: Oil, Gas, and Energy conference at the Hyatt Regency Dallas (Sept. 13–15; register here), ASUG is proud to present this guest perspective from Brent Potts, Senior Director of Global Marketing for Oil, Gas, and Energy at SAP, on the topic of sustainable energy transition.
Many companies in the energy industries are actively discussing their journeys to “sustainable energy transition,” citing shareholder demands for low/no-carbon energy and improved ESG performance. But what exactly is a sustainable energy transition?
Does it involve replacing legacy hydrocarbon business models with renewables? Is it about capturing CO2 to achieve “net-zero” operations? Or does sustainable energy transition entail implementing new business models, even ones that might not have anything to do with energy? As it turns out, it’s all of the above—and more.
For most companies, sustainable energy transition generally means transitioning to business models that result in net-zero carbon emissions. But this does not necessarily mean that all companies are dropping hydrocarbons and moving to renewables right away. DNV, an independent assurance and risk management provider headquartered in Norway, published a report, “Energy Transition Outlook 2022,” that predicts only 51% of the energy mix will be non-fossil by 2050. Two reasons for this are affordability and security—not so much physical security, but security in the sense of a secure energy supply. Europe had to experience the negative side of this when Russia declared war on Ukraine, and their natural gas supply was disrupted.
Additionally, less than half, or about 46%, of each barrel of oil produced today is used for fuel. The remaining 54% is used to make things we use daily, like clothes, shoes, paint, eyeglasses, furniture, tires, and much more. Until viable and affordable alternatives for these products emerge, hydrocarbons will still be needed. Energy companies will need to manage legacy hydrocarbon businesses carefully, digitizing and automating them to drive out costs to ensure they can continue to not only provide the world’s energy needs but do so affordably, as technology makes alternatives more cost-effective and available.
Galp, for example, is an integrated energy company based in Portugal that is investing in solar, energy storage, and green hydrogen. But those at Galp will quickly point out the importance of maintaining its legacy systems, which will provide the cash necessary for it to invest in non-hydrocarbon alternatives. Galp’s previous CEO, Andy Brown, once stated that he wanted Galp to become “the Amazon of energy,” not meaning he expected to be the dominant force in the industry, but rather that he sought for Galp to be one of the most agile in energy, capable of reinventing over and over, with new business models in a resilient way.
Some very large energy companies have started focusing on retail as an up-and-coming profit and loss center. Shell, for example, claims to be the “world’s #1 mobility retailer” and now has over 46,000 Shell-branded service stations worldwide, with access offered to about 9,000 public charging points. To put that into perspective, that’s more retail outlets than McDonald’s owns, and Shell sells 450 million cups of coffee at these stations annually. As more and more charging points are installed globally, and as drivers transition to electric vehicles, energy providers will have a captive audience to sell goods and services while they wait for their vehicles to complete charging.
Other companies focus more on developing technology to tackle climate change through carbon capture, utilization, and storage (CCUS). For example, Occidental Petroleum, or Oxy for short, has a “Low Carbon Ventures” business that developed a technology called direct air capture (DAC), which is being used to economically grow their business while reducing emissions. Technologies like DAC will help companies achieve net-zero carbon emissions by offsetting legacy operations with carbon capture.
Importance of Operational Excellence
In a recent article in Forbes, Jayakrishnan Ramaswamy, Director of Business Process and Systems at Crescent Petroleum, said that “sustainability begins with operational excellence.” This perfectly sums up his approach to achieving his company’s sustainability goals. Crescent Petroleum is the oldest and largest privately held petroleum company in the Middle East and is at the forefront of gas production in the region. It was also one of the first oil companies to announce carbon neutrality.
Focusing on operational excellence requires high levels of digitalization and automation in the cloud, typically including AI and Machine Learning (ML). Eliminating custom code to the maximum extent possible dramatically reduces costs by leveraging market-standard, “off-the-shelf” solutions that meet industry requirements.
Additionally, greater leverage of partnerships and ecosystems can help companies to fast-track innovation. For example, sustainable procurement through highly connected and automated suppliers can increase energy security by responding quickly to market changes.
Geopolitical turmoil, rising inflation, economic uncertainty, climate change, and the global drive to decarbonize—no industry is embedded in all these issues as deeply as the energy business. And as a result, no industry carries more responsibility than the energy business to respond to the rapidly changing market signals and frequent, difficult-to-foresee shifts in energy priorities that these issues tend to bring about. It is a very exciting time to be connected to it.
Brent Potts is responsible for global marketing for the oil, gas, and energy industry at SAP.