CXOToday has engaged in an exclusive interview with Hari Shankaranarayanan, Managing Director and Lead – Energy, Accenture in India
What are the key challenges faced by the energy industry today?
As with any other industry, the energy sector has witnessed inflationary pressures as well as geopolitical and economic uncertainties in the past few years. Some of the key challenges include longstanding underinvestment in production, supply chain disruptions and workforce instability. With conventional revenue streams under threat, fuel retailers are also being nudged to diversify into alternate fuels and non-fuel retail products and services and address the lack of appropriately skilled talent to drive new energy solutions and revenue streams. All of these factors are pushing oil and gas companies to bolster their reinvention efforts.
While India is making efforts to diversify its energy mix and promote clean energy sources, with ambitious targets set for solar and wind capacity, as per recent estimates, natural gas will serve as a strategic fuel in this transition, with a targeted share of 15% of the energy mix by 2030. There is also a growing demand for petroleum products and petrochemicals in India, despite the increase in renewables. This continued reliance on fossil fuels reflects the challenges of a developing economy faced with rising demands from urbanization and industrialization. With the reliance on imported crude, it is also imperative to enhance crude production and secure long-term imports. Balancing economic growth, energy security and environmental sustainability remains a complex task for the country.
Despite the current challenges to energy security, are oil and gas companies still optimistic about their transition to net-zero and renewables?
We are seeing that oil and gas companies across the world are increasingly focussing on the energy transition and sustainable growth. Accenture’s report, titled The Reinvention Reset – From Bold Plans to Pragmatic Actions, which identified the top 10% of oil and gas companies scoring highest on a Reinvention Index as “leaders”, highlighted that emissions reduction is a key priority with nine in 10 (92%) of those leaders setting net-zero targets, compared with 30% of laggards (the bottom 25%). We also found that the best performing companies have the highest hopes for their investments in low-carbon initiatives. The report suggests that leading companies understand better that the future energy system will require a more balanced portfolio that includes multiple low-carbon solutions. For example, one in three leaders (33%) expect more than 5% of their total revenues to come from renewables by 2030, and 15% made the same claim about each of the following technologies: blue hydrogen, green hydrogen, and carbon capture, utilization and storage.
With growing demand and not enough replacement through clean energy, energy security is of paramount importance in India. However, Indian companies have taken a pragmatic approach to their net-zero targets. Fuel retailers are increasingly focussing on non-fossil fuel power sources, new mobility solutions, and industrial green hydrogen. While the green energy transition is a priority for the Indian oil and gas industry, the vision is long-term with most companies making commitments to achieve net-zero emissions between 2040 and 2050. In the short to medium-term, while the installed capacity of renewables is enhanced and clean energy becomes more cost effective with technology advancements, natural gas will serve as a substitution fuel for coal in power generation, with the switch to gas reducing emissions by 50%.
How should oil and gas companies approach reinvention? Also, is there a way to measure progress and transformation?
While there are many ways to reinvent, we have found that the best way forward involves a balanced approach with achievable expectations. Most energy companies are still prioritizing competitiveness (the ability to achieve incremental returns with resilient portfolios and operating models) and carbon (the ability to achieve carbon neutrality by shifting investments, operations and products), s the pillars of their transformation programs. While this is understandable, it may be short-sighted. We continue to believe that the most successful reinvention programs will balance their attention and investments across five key areas – competitiveness, carbon, connectivity (the ability to use digital technologies to enable collaboration, data transparency, cybersecurity—and ultimately enterprise-wide resilience), customer (the ability to deliver personalized, exceptional experiences to business and individual customers), and culture (the ability to define and amplify purpose and deliver employee experiences that unleash innovation). The sooner that balance is achieved, the sooner energy companies will reap the benefits of total enterprise reinvention.
It is essential to consider a range of indicators that reflect the industry’s evolving landscape to measure progress of reinvention along each of the pillars. Key indicators of sustainability performance include greenhouse gas emission reduction, investments in renewable energy projects, clean technology and low-carbon solutions and portfolio diversification beyond fossil fuels. Measuring progress toward the U.N. sustainable development goals (SDGs) and incorporating climate-related risks assessments and opportunities into financial planning and reporting can help oil and gas companies evaluate the success of their transformation efforts, identify improvement areas, and maximize long-term value creation.
Energy transition is providing new choices to customers. How can energy companies improve customer focus?
A customer-centric approach to help drive new customer experiences is key to the reinvention journey of energy companies. One of the significant consequences of the energy transition will be the availability of new choices for energy customers as the homogenous energy system, based on oil and gas, becomes much more heterogeneous. Considering the sustainability risks posed by this transition and evolving market trends, oil marketing companies are also diversifying to non-fuel retail offerings. This provides them with further opportunities to enhance customer experience through custom retail product assortments, click and collect offerings, and store design optimization.
Digital tools and platforms are key to engaging with customers in the new ecosystem. Additionally, digital expertise is necessary to bring together data and analytics that can lead to better decisions about products and services, retail formats and demand drivers as the landscape changes. Fuel retailers in India are increasingly leveraging digital to drive enhanced customer experience through forecourt automation, digital payment offerings, and data and analytics-driven customer journey personalization. Creating a strong data foundation is also essential to capitalizing on generative artificial intelligence, including automation.
In a rapidly changing environment, oil and gas companies need to provide more value, more choices and tailored products and services. By focussing on customer satisfaction today, energy companies can build loyalty that can withstand future changes in demand and market volatility.
As companies progress on the reinvention path, what can be done to close capability gaps in digital technologies?
Digital technologies are poised to transform the oil and gas industry, from upstream to downstream, with potential benefits in the range of $0.5-$1.5 per barrel in some segments through efficiency gains and cost reductions, according to Accenture analysis. To close capability gaps, companies must prioritize reskilling programs, cross-sector partnerships, and investment in digital infrastructure.
In upstream operations, digital technologies such as remote sensing and the internet of things (IoT) can improve production monitoring, surveillance, and exploration while artificial intelligence (AI) and machine learning can enhance predictive maintenance, thereby reducing downtime. Our experience suggests that digitization of upstream operations has the potential to increase production by up to 5%, reducing capital expenditure by up to 10% and operational expenditure by up to 25%.
In refining and petrochemicals, technologies like digital twin and process automation can optimize processes efficiency, reduce quality giveaway, enhance safety, and reduce waste, contributing to a potential 10-20% reduction in operational costs, according to Accenture analysis.
In retail and marketing, advanced analytics can aid in network planning and demand forecasting, leading to significant potential for revenue growth and margin improvements.
Unlocking this value requires a strategic approach. Companies should focus on quick wins to demonstrate the value of digitization, build digital skills across the organization, and establish a culture that encourages innovation and experimentation. The successful implementation of digital technologies will rely not only on the technology itself but also on the willingness and ability of organizations to adapt to the changes they bring.
