“The best way to predict the future is to create it”, is a quote famously credited to Abraham Lincoln. In January 2017, as part of an MBA module, I spent a little more than two weeks in Silicon Valley, the US own technology nirvana. My creative juices were stirred. Visiting organisations like Airbnb, Facebook, Google, Tesla, and Singularity U and experiencing the possibilities that technological innovation can offer.
After that experience, what had seemed like an “’other-worldly” phenomenon had become more real, and I was more convinced than ever, that technological change and innovation would still be game-changers in every aspect of life and every aspect of industry for decades to come. The global energy industry thrives on and responds to prediction. If Lincoln’s words are any to go by, the best way to predict the future of the global energy industry is to create it, now.
The most often talked about technological breakthrough in global energy in recent years has been the transformative, and dare I say, industry-altering impact, horizontal drilling has had on oil. Horizontal drilling, and its twin game-changer, hydraulic facturing (“fracking”), are not new technologies per se; their origins are traceable to the late 19th century, the 1860s to be precise. But why has their impact only been truly felt in the past 6 years or so?
“Well the truth is that disruptive technologies are highly dependent on first-movers, who then catalyse a broader industry movement.”
Fracking is hardly new, but what is new is the way it has allowed explorers and producers to extract hydrocarbons from shale rock. What is even more innovative about modern day fracking is the way both hydraulic facturing and horizontal drilling have converged, or conspired, if you like, to flood global oil markets with more supplies than ever before.
This combination has not only allowed the US to become energy self-sufficient, but has paved the way or a structural shift in global energy markets, so much so that supply, and not so much demand, becomes a key predictive driver of oil prices.
The real question is: Why did the shale oil production boom occur so long after the advent and invention of the actual technology? The answer is so simple but may not be so obvious – higher oil prices. So the story really began with demand. An oil-thirsty and growing global economy helped drive demand, which fuelled higher prices, and in turn made it more profitable and viable for firms to access the capital investment needed to fuel technologi-cal change.
Electric Vehicles (EVs) are zooming in
The global EV and battery storage market is rising (over 2 million EVs were sold globally in 2018), and although Africa is still only a fraction of this market, the continent is undergoing an energy transition that should not be ignored.
In Kenya, these cars could soon become a game-changer. In Kenyan transportation for instance, recent research showed that commuters spend up to 30% of their incomes on transportation due to high fuel costs. Moreover, the cost and fiscal burden on Africa’s fuel-based econo-mies are a problem. Today the cost of fuel subsidies across the continent, average out at around 1.4% of GDP. With urbanization rates of 4% annually, and a corresponding increasing in vehicle fleet, a gradual shift to low-emissions transport systems is probably inevitable. A big limiting factor, as with most disruptive energy and fuel technologies is the huge capital investment needed – though that is often outweighed eventually by low running costs and operating expenditure.
Right now in South Africa where around 1,000 EVs have been sold in the past 3 years, state utility ESKOM is developing a tariff regime for EVs to help lower costs for off-peak charging mb EV owners. Most likely, EVs will eventually become cheaper as battery prices continue to fall, while tightening emissions regulations are helping to shape emerging transportation technology and improve air quality. The EV industry will also help catalyse the further penetration of Solar PV and battery storage on the continent, as an ecosystem develops around the charging, maintenance, sales and distributions of the vehicles.
This trend could also be the impetus for existing retailers of fuel to adapt their existing infrastructure to cater to EV owners through the roll-out of charging points and co-location of alternative energy l sources on site
Don’t ignore the impact of blockchain and cryptocurrencies on energy.
You have probably heard many industry experts say that blockchain is the next big thing in energy. This potential should not be underesti-mated. A blockchain is a decentralized digital ledger that is used to record transactions across many computers so that any registered transac-tion cannot be changed retroactively, except you try to alter the series of blocks that
consti-tute it, through a complex painstaking process. In short, blockchain places an almost complete barrier on the alteration of data.
There is another way blockchain can help spark changes in the industry. The growth of platforms and business models that eliminate intermediaries has created a new phenome-non, which author, Arun Sundararajan, in his book ‘The Sharing Economy” describes as “crowd-based capitalism”. For instance, blockchain has introduced possibilities for peer-to-peer energy markets, with the capacity to transform the operational landscape in oil and gas trading, electricity distribution and even offshore drilling. Mini-grid communities in some parts of the US are already enjoying this innovation, allowing consumers to directly purchase energy from a supplier who has a solar or wind source for instance, removing the need for oversight from a centralised authority such as a disco and potentially disintermediating public utilities like bulk electricity traders. There’s the power of solar energy for instance to join forces with other disruptive technological trends such as crypto-currencies (like we see with solar and mobile telecoms in Africa). Bitcoin mining profitability is determined by the cost of electricity more than any other factor. So if solar power is cheaper than buying grid power, it can make sense to combine on-site solar power with digital currency mining operations a strategy already being adopted in many parts of the developed world.
In the upstream E&P world, blockchain could very well help strengthen equipment procurement and maintenance processes by protecting transaction documentation end, which could for instance, enhance the link between money deployed for services and the oilfield services provided. It would create a digital footprint that would be difficult to alter, thus reducing fraud and opaque contractual processes.
Take for instance the entire ecosystem that is involved in the trading or importation of white products into countries like Nigeria i.e. bill of lading, delivery documentation, products certificate etc. eliminating a physical trail and replacing it with a completely digital trail whose footprint stays in cyberspace forever, would be revolutionary. It is understandable to be cynical about whether such future-forward technologies will find accommodating ground in frontier markets like Nigeria. Well, the truth is, disruptive technologies are highly dependent on first-movers, who then catalyse a broader industry movement. For instance, technology developed for Shale is now being extended to expand conventional oil drilling in frontier and mature energy markets in the North Sea and offshore Africa.
Smart offshore technology and the future of work.
With an ever mobile pool of rigs, contractors, support vessels, helicopters, boats, etc. offshore drilling operations have never been more complex in a shifting cost landscape. There is an increasing demand for a smarter way to work offshore, both as a way for executives to reduce drilling, development and production costs, and as a way to take better decisions.
Take rig decommissioning; an estimated 600 rigs will need to be decommissioned globally by 2021, according to Offshore Technology. Operators need to devise more environmental-ly palatable ways of doing so, and data analysis driven by technology will be key. Automation in many industries is already defining the future of work as robotics, Artificial Intelli-gence (AI) and cloud technologies will occupy space once the preservation of manual and physical labour is done. In the refining and petrochemicals space, process automation has already seen considerable traction. With estimates suggesting that in a recent survey by consulting firm, Booz &Co., the digitalisation of oilfield technology could increase the net present value (NPV) of oil and gas assets by 25%, upstream players need a way to bring technological adaptation to core business operations.
Senior executives in Africa’s E&P industry need to lead the transformation to this smart world. Ultimately, data scientists will have to become just as important as drilling or petroleum engineers, and the sooner the industry realises this, the better. It will not be easy to build a culture that embraces digital transformation – it will require a mindset shift, and
increasing investment in hiring the right kind of talent.