2016 was a year filled with an overproduction of energy on a global level, especially in oil and gas, resulting in an overhang of the oil inventory, which reduced the US shale production. However, this did very little to spur the demand needed to bring the global market into balance; therefore, change may be the main feature of the global energy sector throughout 2017.
Not only the oil and gas industry, but also electric power will be going through expected changes, led by many major external and internal factors. These changes will soon require leaders of the industry around the globe to reconsider current strategies, as expected by Booz Allen Hamilton in its forecast of energy trends in 2017.
Booz Allen Hamilton provides management, technology, consulting, and engineering services to corporations and governments across the globe. It has been present in the Middle East and North Africa (MENA) for six years, during which it partnered with public and private sector clients to solve the difficult challenges they are facing in business strategy, data analytics, cybersecurity, resilience, operations, supply chain, and more. Relating to its experience in these fields, the company expected in its forecast of energy trends in 2017 that the industry will be impacted by five main trends. However, an overall look of the region’s expected energy trends and the current circumstances is necessary in order to be able to predict correctly.
The Middle East is relying less on oil; increases investment in high-potential sectors
With the prolonged period of low oil prices, government spending is headed towards economic diversification and reducing reliance on oil, which prompts greater investment in high-potential sectors. These include real estate, construction, hospitality, tourism, and education. More attention is also being shifted towards achieving operational efficiency across sectors, and the most prominent area which will be benefitting greatly from digitally-enabled solutions is utilities. In the past, the sector of utilities has not invested as much as was preferable in information technology (IT). However, many utilities in MENA are now realising the importance of smart technology for them, and will perhaps begin to pay more attention to implementing it in their systems.
In utilities and electric power, the traditional supply chain is undergoing change driven primarily by regulation, public policy, plentiful inexpensive natural gas, and dramatic cost declines in renewable energy and storage, as Booz Allen Hamilton mentions in its forecast.
Data analytics will form the future of energy in 2017; greatly contribute to its changes
Dr Adham Sleiman, vice president of Booz Allen Hamilton MENA, said that data analytics may be one of the main trends expected to shape the future of the energy sector in 2017. “Big data is rapidly changing the way the energy sector operates globally—by reducing costs, optimising investments, and reducing overall risk. In order to achieve these objectives and create additional value from untapped areas, organisations in the Middle East must establish holistic digital strategies that include upgrading their required digital capabilities,” he added.
Executive vice president in energy, chemicals, and utilities at Booz Allen Hamilton MENA, Dr Walid Fayad, said that energy and technology form the backbone of global economies and play a main role in the operational success of all other sectors. “As innovation and technological disruption become the norm across the MENA, we are increasingly seeing regulators and policy makers embracing game-changing trends in the energy sector—from support of renewable energy, advanced metering, and grid modernisation to big data and cloud. We expect that wider adoption of these technologies will increase overall operational efficiencies, especially in the wake of a period of prolonged low oil prices,” he said.
Five main trends will impact the energy industry throughout 2017
Booz Allen Hamilton expects in its forecast of the energy conditions in the world and especially MENA that the energy industry to be greatly impacted by five trends in 2017.
The first trend is a focus on capital expenditure productivity, where capital programme execution is put under major pressure by market shifts, and leaders of the oil and gas industry are pursuing everything from technology and information innovation, to greater personnel and asset tracking in oilfield development in an effort to drive greater labour and material productivity. The electric power industry is put under similar pressure as well. Inexpensive natural gas has already caused a collapse in the construction of new coal plants, and nuclear power is now in danger of a similar decline. In the entire energy spectrum, companies are taking steps to develop the ability to conduct deep continuous analysis of their capital projects during execution, and leaders are finding ways to put the insights they gain into management action.
The second trend is the creation of enterprise value from data. With the implementation of advanced instrumentation and metering, the amount of data from the energy sector’s operations has skyrocketed as is the case with many other industries. The most accessible benefits from this data have been realised so far. This data has helped identify opportunities or cost-saving through several actions, inducing labour elimination and incremental improvements of already existing processes. Of course, the usage of analytics in the energy industry is not new, but companies are now starting to realise that data can actually create new value for existing businesses. For instance, vertically integrated oil companies have very limited insight into the markets into which they sell their products, but now, data science is changing this through creating dramatically better ability to unravel and comprehend trends, draw insights, and capture new opportunities. A similar change is expected to take place in safety and reliability, where use of data is changing what engineers know about the optimal safe operating envelope for industrial processes. In terms of organisation, companies in the energy field are growing centralised data science teams, often blending legacy employees with new, more data science-oriented hires. The hard work of building business cases for data science is just beginning.
The third trend is the usage of markets in shaping the future energy grid. Regulators and policy makers in the industry are increasingly moving from a standards-and-subsidy approach to one that is more market-driven. The standards-and-subsidy approach stemmed from the public sector’s support of renewable energy, advanced metering, and grid modernisation over the past five years, in the form of mandatory deployment standards, and direct and indirect subsidies. This has been very effective at driving down the costs of these advanced energy technologies, spurring their broader deployment. Now with the new approach, regulators are trying to form a foundation for future markets, requiring a greater understanding of the value that distributed energy resources (DERs) bring to the grid, so owners of DERs can be fairly compensated. For utilities, particularly in retail markets, this requires understanding how the grid works with greater accuracy, and being able to model how it changes over time with the further expansion of DERs. This also means operating markets where customers have greater choices compared to past times.
The fourth trend is following security to the operational edge. In the energy sector, security has been mainly focused on the protection of the customers’ data on the companies system. Now, the security limit is gaining great importance and is pushed to the operational edge with the increase of instrumentation, automation, and virtualisation of operational assets in companies. The Industrial Control Systems (ICS), which control the automation of power movement through the electrical grid, oil flow through pipelines, and manufacturing systems, are facing threats as they represent an increasingly diverse and extensively connected set of technologies. However, as cyber-attackers become more emboldened, they are recognising the operational, economic, and safety impacts that attacks on the ICS infrastructure can cause. As a result, companies will increase their focus on security beyond their traditional lens.
The fifth trend is that innovation is the tipping point for cloud. In most industries, the decision to migrate IT infrastructure from fixed, on-premises servers to cloud-enabled as-a-service models has been heavily based on cost. While this has been the case in many corporate systems at the oil super-majors, innovation is now leading the current wave of cloud migration in operational business units at these companies. To create maximum business value, the rise of analytics within operation business units is now enabled by a digital strategy that is more flexible through resorting to the cloud. The use of the cloud in the utility industry was delayed because of the inability to predict how the costs of the new service models will be categorised.