Powering the Future: Renewables, New Technology, and Diversification Are Forecast for Energy Sector in 2020 and Beyond
2020 will be a year dominated by environmental issues. Governments are under increasing pressure from climate activists and protest groups to address carbon emissions and reduce fossil fuel consumption. The effect of this scrutiny has been largely felt in the energy sector. This decade organizations within this industry will have to manage new environmental taxes and government regulations on top of rising pressure from climate groups.
But not all change in the industry will be climate related. Organizations need to start engineering business plans for the future that will protect them from globally occurring phenomena, both political and economic. This plan should also take into account the threat of skill shortages and careers in the industry losing their appeal among young people. In light of these considerations, I predict the following outcomes for the coming year in the energy sector.
Mining Turns to Technology to Fulfill Accountability Demands
Compliance and calls from consumers to know the origin of materials are demands miners will have to meet in 2020. I see enormous potential in blockchain technology to help businesses involved in the precious metals and minerals value chain prove provenance and compliance. A blockchain will provide an indisputable account of where, how, and under what circumstances a certain raw material was sourced, refined, shipped, and retailed.
Because the main driving forces behind this are the need to appeal to the ethical consumer and to fulfil compliance obligations, I predict that, in 2020, we will see some early examples of blockchain technology being deployed across the mining ecosystem to prove to consumers and business customers that their gold, platinum, lithium, and more have been mined in a sustainable and ethical way.
Technology, such as “internet of things” (IoT) devices, can provide useful information about mining operations. But this is only truly useful when there is a clear strategy behind the data. In 2020 and beyond, I predict that original equipment manufacturers (OEMs) will use IoT sensors to monitor the assets in real time to make sure penalties for operating temperature or engine revolution range are levied if the threshold levels are exceeded. This means a shift toward more complex contractual terms between OEMs and mining businesses, and will require mining companies to bolster their commercial skills and contractual risk analysis—creating a need for a robust enterprise resource planning (ERP) backbone on which to secure their financial models to forecast contract costs.
Major Energy Firms to Expand Their Business Models Outside the Traditional Remit
Many oil and gas companies are changing their business plans in an attempt to prepare for the future. Feeling the pressure to build a business that is sustainable in the long term, a number of traditional oil and gas companies have started diversifying and indeed marketing themselves away from being purely oil and gas concerns.
Shell, which is known for oil and gas extraction, refining, and trading, is now retailing not just domestic energy but also broadband, smart home technology, and boiler service. In the world of telecommunications, we can see similar moves by companies like Virgin, which is looking at allowing its cabling infrastructure to be used to carry charges to electric vehicles.
I do not expect all companies to expand outside the industry to such an extent as Shell, nor will all companies diversify in the same areas, but all companies in the oil and gas, and power generation sectors will diversify in some way—whether that’s bringing alternative power generation methods into their mix or utilizing a company’s offshore expertise to pivot from fossil fuel to supporting offshore wind farms.
I predict that in 2020 we will see many household names changing their businesses and offering new or peripheral services. This is not really servitization—it is much more. Major players will expand to dominate an energy value chain end-to-end or react to an adjacent opportunity leveraging existing infrastructure that can be exploited relatively easily.
Despite Renewable Energy Winning the Majority of New Investments, Oil and Gas Demand Will Be Bigger Than Ever
In an attempt to address social demands, renewable fuel consumption will increase dramatically. Figures from the International Energy Agency (IEA) suggest that by 2023 renewables will constitute a double-figure percentage of overall fuels. The renewable energy market is also predicted to grow by 20% between 2019 and 2024. Although other organizations such as CNBC have less optimistic views on the potential of renewables, it cannot be disputed that consumer demand for them has never been higher and this is likely to increase worldwide.
In fact, the IEA has suggested the world’s total renewable-based power capacity will increase to the equivalent of the U.S.’s current power output. One notable point when considering these forecasts is that the estimated proportion of renewables goes up every time the organization makes a prediction. In 2017, it was suggesting increases into the next decade would be small and would not reach double figures; every year the outlook becomes more optimistic.
But the world’s population is still rising at an exponential rate and consequently the amount of energy consumed is increasing as well. By 2030, it is estimated that the equivalent of a whole new China and India will be added to the planet’s global energy demand. In light of this projection, I expect that into the 2020s, oil and gas demand will remain high, while demand for renewables increases at a rate of double figures each year.
Even as wind and solar power are becoming more reliable and cheaper to install, I predict that in the 2020s, oil and gas will continue to meet around 50% of the worlds energy demand (before a sharp decline in about 2030) while renewables will continue to grow. Fast.
The future of the market depends on businesses across the industry being agile and adaptable. They will need to adapt to the rise in use of renewables, growing calls for accountability, as well as diversified business models. Willingness to adapt will keep the future bright for the industry.
—Colin Beaney is global industry director for Energy, Utilities & Resources with IFS.