Oil prices are on an upswing. Optimism is back. And recent earnings harken back to the “heady days” of 2014. So it’s business as usual, right? Not quite.
As described in Accenture Strategy’s "The writing’s on the well", a number of factors—from energy demand growth to resource abundance to changing consumer behaviors to the energy transition—are converging to create what we call compressive disruption. This sort of disruption is based on incremental changes that accumulate over time. It’s characterized by new technology uses, new ways of delivering services, and new competitive players. While not as immediately jarring as big bang disruption, the combinatorial impact of these changes requires oil and gas companies to stage a bold response. An unconventional path is often the best—if not the only—way forward.
Industry leaders are already preparing. More than three-quarters (82 percent) of energy executives agree that their current business models will be unrecognizable in as little as five years, according to Accenture Strategy research.1 Another Accenture Strategy study found that 40 percent are accelerating innovation as a strategy to drive growth in the next three years.2
So what new business models will their innovative approaches yield? We’ve identified four possibilities.
Gas Integrator – Oil and gas companies might opt to leverage gas abundance to reshape asset portfolios and tap into “tail market” demand. Examples of models that characterize this transition include dynamic gas traders, retail liquid natural gas providers, industrials energy partners, or gas infrastructure financiers or developers.
Power Disruptor – Electricity demand is expected to double over the next few decades. At the same time, the traditional means of generating, transmitting, distributing and consuming it are being disrupted. This offers an opportunity for oil and gas companies to establish new assets—and then scale them to transform clean power supply curves. With this model, they would play a central role in smart management of demand and dynamically link supply with demand.
Materials Producer – Indigenous demand for materials derived from the extended hydrocarbon value chain will continue to be a primary driver of industry growth—not only in high consumption developing economies, but around the world. Resource abundance will fuel growth in a variety of areas, from natural gas liquids to Naptha-based materials, at lower cost. In this environment, energy companies can go beyond commodity petrochemical plays and morph into “materials” players through partnerships or investments in products or specialty chemicals. Such a move would open up new sources of rapid growth, create additional links to the consumer, and serve as a natural hedge against input and price volatility.
Consumer Innovator – The consumer sits at the core of disruption in almost every industry. Energy is no exception. By creating more consumption access points (e.g., charging stations) and providing innovative customer-centric solutions that influence demand (e.g., beyond-the-meter or storage solutions), oil and gas companies can gain a greater toehold in customer markets. This may help them hang on to the 61 percent of all consumers who stopped doing business with a company last year due to poor experiences.3
Re-engineering their DNA to shift from a commodity player to a consumer-centric enterprise is already on most energy executives’ radar. We found that 73 percent of CEOs across industries acknowledge the need for products, services and experiences that are more meaningful to their customers.4 On-demand services such as fuel-on-demand, two-way grid and connected consumer access may hold particular appeal.
Regardless of what business model companies pursue, they need to keep five things in mind.
Demand growth underpins an energy-rich future. With the right operating model, policies and investments, companies can capture a large prize.
In today’s dynamic environment, there is no finish line. Oil and gas companies must recognize they are in a never-ending race to improve where to play and how to win.
Energy companies are becoming technology companies. The lines are blurring and change is accelerating. The difference between leaders and laggards will become staggering.
Two Cs will be critical: capabilities and capital. Energy players, their suppliers, and governments will have to determine how to overcome the availability constraints in both.
Winners will ambitiously seek growth and value. Diversification of energy sources, convergence of industries (i.e., oil and gas, utilities, automotive, storage and technology), and the emergence of consumers as primary orchestrators of value open opportunities for those that make their moves now.
In short, oil and gas companies cannot take their current incumbency for granted. Nor should they be swayed by recent price increases to act as if they are operating in a “normal” business environment. We advocate they act with urgency, as if they were competing in a sub-$30 environment. If they do, they just might reap the benefits of a $200 world.
1Accenture Strategy Ecosystems Research, 2018
2Accenture Strategy Revenue Growth Research, 2017
3Accenture Strategy Global Consumer Pulse Survey, 2017
4Accenture Strategy Global Consumer Pulse Survey, 2017