The clock is ticking for oil and gas majors. They must transform their business models now or face obsolescence. Here’s how they can come out the other side intact.
You can't open a news website or paper today without seeing a fresh story about sustainability and the race for carbon neutrality. Though energy demand is increasing, the world’s governments and consumers are pushing ever harder for more environmentally friendly power.
Across the board, Oil and Gas majors are seeing their current business models under heavy scrutiny. We're seeing fines handed out for insufficiently ambitious carbon reduction initiatives. These traditional energy giants know they must diversify and transition towards sustainable alternatives - wind, solar, hydrogen and biofuels - but the time for weighing up options has passed. They must transform, invest and execute their strategies now, or risk obsolescence within the next decade. And instead of less energy supply, we need further carbon neutral energy supply to ensure societies and economies continue to function well.
The time for weighing up new business models has passed. With only 10-15 years left before key carbon reduction targets must be met, Oil and Gas majors must execute their transformation strategies now.
Part of this transformation will be establishing an offering for new customers such as utilities and other energy providers.
Every Oil and Gas major is different. Some have global markets, and some are more tightly focused on their local markets. In simple terms, this means that there is not a single strategy that will be right for all. Businesses must take account of their geographical and operational strengths to determine a successful path forwards.
The demand for oil and gas will continue for some time, but the diversification process (into an agnostic energy supplier) must begin now. Oil and Gas majors must show they are capable of offering a portfolio of different energy options to match demand, particularly from large institutional customers.
The energy world is becoming much more complex. Gone are the days of finding energy, refining it, shipping it then marketing it, all at a relatively high margin.
As Oil and Gas majors seek opportunities in new sectors and new fields, they’re coming up against a much more diverse set of competitors, many of whom are well established. The landscape is bustling with new entrants, and margins in the new world are much lower. Strategies must shift accordingly from the unipolar to the multipolar, and towards more updated and efficient operating models.
The basic business model and operating structure of an Oil and Gas major have remained unchanged for decades. But all of that is now in jeopardy and under scrutiny.
Firms must adapt to new environments and new corporate directions, and quickly. The only way to do that is to invest heavily in change management, to re-define the strategy and operations of the business, and help existing workforces to break out and transform their thinking and ways of working. Choosing the right partner can be instrumental to this end.
With diversification comes the need for new skills and knowledge of target environments. Fresh understanding brings new opportunities. The most forward-thinking of today’s energy companies are increasingly filling their ranks with talent from right across the energy and industrial worlds.
The need to diversify has been on the Oil and Gas agenda for at least a decade or more. Alongside operational shifts, some firms have made substantial attempts to re-position their brands in the public mind. But in a cynical age these attempts have been largely ineffective, and even backfired in the wake of environmental disasters directly contradicting their planet-friendly messages.
Sensitivity to greenwashing is at an all-time high. Oil and Gas majors looking to carve out new roles for themselves would do well to avoid it completely, and instead focus on delivering innovative and meaningful energy solutions that fulfill the needs of customers who may not only be end customers and industry customers but also other energy providers as well.