Oil & Gas
Overview
One Minute Read
We are at an energy inflection point and the 2020s will be the make-or-break decade for the Oil & Gas industry. For decades, companies and policymakers have struggled to balance the three goals of ensuring a secure and reliable energy supply, at an affordable cost, with minimal environmental impact. Now with climate change a compelling priority Oil & Gas is a at crossroads. Companies need to move quickly to rethink strategy, build new capabilities, and transform their businesses to the meet the continuing, but reducing, demand for oil & gas, and the wider opportunity of energy transition. Digital technologies such as IoT, AI and the Cloud will be crucial in creating a sustainable and profitable industry.
Industry Description
The Oil & Gas industry is responsible for the global processes of exploration, extraction, refining, transportation, and marketing of petroleum products. The industry is broken down into three segments: upstream, midstream, and downstream.
- Upstream, or exploration and production (E&P) focuses on the discovery and drilling of drill oil and gas wells,
- Midstream is responsible for transportation from the wells to refineries and;
- Downstream undertakes the refining and the sale of the finished products.
The oil and gas industry is one of the largest sectors in the world in terms of dollar value, generating an estimated $5 trillion in global revenue as of 2022.
The energy industry is vulnerable to several supply chain threats, including extreme weather, cyberattacks, trade disputes, workforce instability and surges in supply or demand.
The industry has been driven by numerous technological innovations and was one of the earliest adopters of IoT and real-time data. However more recently the industry has lagged behind others in digital transformation.
Drivers
Shaped by the global megatrends and now the pandemic, the industry is being defined by five major drivers:
Demand - COVID-19 resulted in a significant drop in demand but this has largely recovered. However the long-term demand is forecast to decline with the switch to electric power. However in 2035, oil and gas will still account for roughly half of the global energy mix.
Sustainability - The O&G industry is responsible for around 40% of global GHG emissions today. Companies now face significant legislative and stakeholder pressure to demonstrate pathways to net-zero emissions.
New Geopolitics - The fallout from Russia’s invasion of Ukraine is only the latest example of how
concerns over energy security alter the direction of government policy, with impacts on Oil & Gas supply
and demand.
Regulation & Safety - Regulation has traditionally played a significant part in defining the operating environment and this will continue bolstered by growing ESG regulations.
Future Value - Today the industry is making record profits but over the past 15 years, the annual total returns to shareholders (TRS) for the average oil and gas company has lagged the S&P 500 by seven percentage points. With the energy transition Oil & Gas companies needs to create a sustainable business model in order to protect future returns.
Transformation
The industry will transform rapidly over the next decade as it seeks to meet the demands of energy transition and net-zero targets.
Transformations shaping the New Energy Ecosystem are:
Digital Asset Management,
Intelligent Workforce,
Decarbonising Operations,
Low-carbon Energy,
and Digital Retail.
These changes will impact into other industries such as Retail, Transportation and the wider Energy & Resources market
Digital Technology
Digital transformation will drive needs for Business Applications and platforms to deliver a more connected data-driven energy value chain.
The Oil & Gas industry generates huge amounts of data and will need to leverage the scale and flexibility of the Cloud and Data Analytics. Artificial intelligence will be important to drive automation and efficiency. Network & Communications infrastructure is crucial to gather real-time data to maintain reliable and sustainable production, and a Digital Workplace will enable an agile workforce.
Security, Compliance & Data Privacy is vital for critical infrastructure and regulation scrutiny. Finally, IT Governance & Management will be essential to manage the change and ensure value for money.