March 27, 2018
That’s a wrap: Observations from IP Week 2018
By: Sourav Niyogi

This year’s IP Week 2018 held in London last month saw a renewed—if cautious—optimism amongst participants. And for good reason. Oil prices seem to be steadying, with a bullish outlook from commodity traders. The Organisation of Petroleum-Exporting Countries (OPEC) appears committed to the production-cut agreement that is now meeting its aimbringing inventories toward the long-run median.

Three key themes dominated the event discussions this year: Energy transition and sustainability, cost and cash discipline, and digitalization.

While government policies, new technologies and social preferences will continue to shape the energy transition, discussions centered around the speed of transition through 2040. Demand will continue to grow, primarily driven by a burgeoning middle class in India and China. By 2040, global energy consumption is set to increase by roughly a third. Industry executives appeared unanimous in their belief that peak oil demand will occur in the 2030s, with steady growth until then.  

Gas is going to grow faster, driven namely by liquefied natural gas (LNG). Electrification will continue to grow, driven by non-OECD (Office of Economic Co-operation and Development) countries. There was discussion that the ambition of the United Nations Paris Agreement on Climate Change to keep global warming “well below two degrees Celsius” is influenced by what Andrew Smart, Accenture’s Global Energy Industry managing director, referred to as "regional realities"—that is the relative impact of wealthier nations in meeting climate change requirements. 

The emphasis on cost and cash discipline was no surprise. The energy industry has been unilaterally focused on driving costs down over the last few years. While the cancellation of projects kept capital investments down, it has been important for the industry to focus on unit costs. I saw a clear recognition from most parties that our industry needs to learn from other industries in driving cost down sustainably. Andrew discussed the need to learn from the consumer products industry’s effort to zero base costs, leading to sustainable cost reduction enabling profitable growth. The message from industry leaders was clear: In spite of the recent firming in oil prices, a focus on efficiency, reliability and capital discipline is here to stay. As Andrew stressed, the industry must move to “should cost” models, a distinct departure from historical top-down approaches. This change is possible because artificial intelligence and machine learning technologies enable a detailed understanding of costs at the micro-line-item detail.

The discussion around digitalization was particularly pervasive. Andrew emphasised that every company is now a digital company. All opening speakers indicated that digital is key to the future: Digital sensors to monitor, digital tools to control, digital simulations to optimise, and digital databases to organize. There was widespread recognition from participants that digital transformation is key to addressing current and future industry challenges.

Digital is a key enabler to reducing costs, making faster and better decisions, and increasing workforce productivity. The increasing consensus over the course of the week was, that to translate digital efficiency into better financial performance and new business growth, the industry needs to look outward. Learning from other industries and partnerships to foster innovation will be key to success. This transition is critical for the industry to develop and attract talent.

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