Integrated Oil Companies in the Energy Transition

Russell Reynolds Associates recently hosted the ninth instalment of the Energy Matters, People & Money networking series. The event brought a community of industrialists and investors from across the energy transition value chain together to explore the role of integrated oil companies in the energy transition.

Event Speakers  

Antonio Cammisecra
Former CEO of Enel Green Power

Huibert Vigeveno
Downstream, Renewables & Energy Solutions Director and ExCom member, Shell

We surveyed our attendees:

Five years from now, how significant of a role will integrated oil companies (IOCs) play in the global energy transition?

Five years from now, will US or European IOCs have the more profitable business model?

What are the biggest blockers which IOCs face in trying to accelerate the energy transition?

Do IOCs currently have the right leaders to deliver on their energy transition?

At the recent event, 65% of executives agree that integrated oil companies (IOCs) will play an equally, if not more dominant role in the future energy transition, despite the shifting energy mix. However, the traditional business model of oil and gas players is under pressure and IOCs must make profound decisions about their future. According to the IEA, oil and gas companies are spending just 2.5% of their investment on clean energy, which is approximately 1% of the global clean-energy spend. So, what will the future role of IOCs entail, and how do they need to adapt?

IOC’s have a significant role to play both in energy delivery today and enabling the energy transition for tomorrow

Scaling up clean energy technologies. Many IOCs are well positioned to become leaders in the energy transition. They have the capital, capabilities and technical expertise to scale clean energy solutions, especially for hard-to-abate industries. In heavy transport, for example, IOCs can provide better synthetic lubricants, which can improve fuel economy by up to 5% versus conventional oil. In the medium term, IOCs can provide bio-LNG or renewable diesel and have the ability to develop and scale up the production of hydrogen from natural gas as a low-carbon, low-cost source of energy in the long-term.

Supply chain decarbonization. The oil and gas sector moves US$4 trillion in value through its supply chains each year and has deep expertise of managing complicated global supply chains and optimizing assets, which will be especially valuable in a more complex, connected renewable energy market. IOCs will play a crucial role in providing the investments needed to greenify supply chains and encouraging smaller companies to adopt sustainable practices.

Customer centricity. Winners in both B2B and B2C retail have shown that downstream power should be customer-centric. IOCs must improve customer centricity to better understand new customer segments and provide specific and integrated customer offerings that are tailored to individual needs. As companies transition to renewable energy, this ensures capital is invested into projects which offer the greatest opportunity to fit customers’ needs.

Affordability? Transition? Security? It is naïve to think about the energy transition as a standalone objective. Energy transition, energy security and energy affordability must go hand-in-hand. This strengthens the case for more investment in clean energy—including energy efficiency, renewables, electrification, and a range of clean fuels—to reduce dependence on imported oil and gas. Investing in clean energy is to strengthen energy security.

Winners and losers – an ability to adapt

A shifting landscape. The degree of market disruption, supply chain challenges, and the fact that many technologies will not be at a mature, scalable stage, means betting on which players will be successful some years from now is increasingly difficult. The market is also fragmented with an increasingly diverse range of players – in scale and scope. Historically, the market was dominated by a few leading players and most of the companies profitable today were not ten years ago. Today, the largest renewable player in the world has less than 2% market share.

From knower to learner. Just 10% of executives at the event believe that IOC’s currently have the right leaders to deliver on their energy transition. There is a significant need for leaders with multi-system level thinking and disruptors who will shift gears in the transformation of their organization. IOCs also need to develop their leadership competencies for the future with the biggest evolution happening in the mentality shift from a knower into one of learning – and deciding who to learn from.

Communication. IOCs should ensure that they are building – and communicating – a brand which others will want to be associated with. Experienced energy transition talent is in high demand and has many options. Part of this solution is to be found in the way companies communicate. Learning how to effectively communicate policy, decision-making and activities is critical for building trust with stakeholders, customers and civil society.

Authors

Chris Nicholson; a member of the firm’s Global Industrial & Natural Resource Practice, covering the energy markets.

Abigail Skerrett; a member of the firm’s Global Industrial & Natural Resource Practice, covering the energy markets and co-lead of the Global Energy Transition Practice.

Shola Brown; a member of the firm’s Global Industrial & Natural Resource Practice.

Please get in touch if you would like to discuss these themes in more detail, and/or attend the next event in the Energy Matters series on Wednesday 31 January. It will be focused on exploring the role of the integrated energy companies in the energy transition. 

Cordi O'Hara will discuss value and opportunities across the grid.