The changing joule dynamic 

The current energy transition is also different because it is fueled by an urgency to act on climate change and by demands for a shift to fuels with lower carbon intensity (once the very near-term supply chain disruptions and inflationary environment have stabilized). Activist investors and environmentalists are urging companies to take drastic action. We agree that they should.

However, what’s lost in much of the dialogue today is the fact that oil and gas will (and must) constitute a large share of the energy mix in the decades ahead. Of course, these energy sources should be produced, developed, refined and transported as cleanly as possible. But suggesting that they be eliminated from the energy portfolio completely is just not realistic.

¹Net primary energy demand of power generation after deducting output electricity/heat.

²Including feedstock use of hydrogen for refining and ammonia production.

³Others include pulp and paper, non-ferrous metals, agriculture, forestry, fishing, rail transport, mining, light industries and other non-energy use.

Source: Accenture analysis.

The drivers of change

Three factors are driving today’s energy transition—or, more accurately, its evolution:

1. Urgency around climate action from all stakeholders, evidenced by consumer pressures, investor activism and governmental regulations, incentives and commitments (e.g., COP26 methane reduction pledges from 100+ countries, the commitment of $130 trillion of private capital towards a net-zero economy and others).
2. The increasing pace of technology advancements, particularly in renewable generation and energy storage.
3. The need for energy security in a transitioning energy system that allows developing economies to assume more local/regional control with the emergence of renewable fuels.

The emergence of a heterogeneous energy system

As global demand for energy continues to grow—by approximately 16% over the next 15 years in Accenture’s base scenario—oil and gas will remain the dominant fuel source, accounting for nearly half of the global energy mix. But alternatives are now becoming more economical and viable, chipping away at oil’s leading position.

Even within the hydrocarbon portfolio, changes are afoot. The transition away from coal in the power generation and heavy industrial sectors—particularly in Asia—is creating new demand for natural gas. In fact, we project that demand for natural gas will grow by 14% by 2035. That’s despite energy efficiency increases across sectors (typically between 0.5 - 5% per year) and demand for renewable fuels (notably, wind/solar) tripling over the next 15 years.

The reality is that the homogenous energy system we’ve grown accustomed to is becoming much more heterogeneous. The new system will enable consumers to tap different sources of energy to meet the needs of different industries and geographies.

Beyond differences in regional and sector demand profiles, oil and gas companies need to accommodate varying country regulations, technology advancements and investor pressures. Each of these factors contributes to even greater heterogeneity—and complexity—in the energy market.

Five portfolio plays

Accenture recently carried out an extensive analysis to gain a better understanding of how near-term and mid-term demand-driven change will affect the energy system and, notably, the oil and gas industry over the coming 15 years. Specifically, we looked at annual changes in energy demand across eight regions, nine sectors and eight fuel sources.

Our analysis modeled two scenarios:

• A best case scenario assumes relatively stable oil prices and moderate carbon taxes.
• An optimistic transaction scenario assumes a more challenging price environment and higher carbon taxes globally.

From this analysis, we identified five portfolio plays oil and gas companies should consider, along with opportunities for various players in the value chain and recommended actions. Our findings suggest that these plays are most likely to help companies meet energy demands while also boosting their profitability and relevance in the new energy system, regardless of the energy scenario that unfolds.

Relevance matters

There are five opportunities for oil and gas companies to re-imagine who they are, what they do, where they operate and whom they serve in the next 15 years.

Some involve refocusing their portfolios on oil and gas, albeit in cleaner and more sustainable ways. Others involve heading into new frontiers. All, however, call on oil and gas companies to develop new capabilities and new business models to meet energy demands, while also boosting their profitability and relevance in the new energy system, regardless of the energy scenario that unfolds.