By Michiel Soeting, Global ENR Leader
It is hardly surprising that ENR business leaders are preoccupied by changing their business operations to realise cost efficiencies.
In this hugely diverse sector, companies face a range of challenges, including geopolitical pressures in the Middle East, uncertainty in commodity prices and demands to increase the ratio of renewables in the energy mix.
Add to these pressures, the prevailing economic climate and it is easy to understand what makes being lean and competitive on cost top business priorities.
For companies that often operate out of hostile conditions and in harsh terrains, recruiting people is an endless struggle.
The ENR sector makes managing and retaining the right people its top priority. In the upstream (extraction) sector, there is ongoing concern about the availability of qualified engineers. Companies embarking on projects in far-flung destinations are investing significantly in order to maintain their talent pipeline.
Commercial and regulatory pressures mean that this industry faces significant changes to its operating and business models.
Energy generating companies are under pressure to incorporate renewables into the energy mix in order to comply with government regulation; mining companies are entering into alliances with complementary partners in activities such as trading; integrated oil and gas majors are divesting downstream activities or splitting their operations. The extensive nature of these changes necessitates alterations to business models, an issue they rank as their third-biggest priority.
Meanwhile, the shadow of incidents such as the Macondo oil spill and the Fukushima nuclear accident focuses boardroom attention on low-probability, high-risk events.
Against this backdrop, we asked respondents whether they felt energy prices would double in the next five years.
The resounding answer was no. It is well-founded. Despite rising demand in Asia, energy supply and demand fundamentals do not currently indicate a doubling in price. There is over-supply in refining capacity while new, unconventional resources, such as those related to extensive fracking for shale oil and gas, notably in the US, are coming upstream. Further ongoing energy efficiency is also impacting demand, particularly in mature markets.
On investment in infrastructure, one-third agrees that the economic environment is favourable while nearly half (48 percent) disagrees. This reflects wide diversity in the sector. In extractive industries, large companies are investing more than ever before on the back of relatively high commodity prices. Meanwhile, energy generating companies are hampered by government austerity measures, which curtail much needed investment in infrastructure.
Similarly, regulation has a positive impact on some parts of the energy industry ― notably those in the renewables space. However, as governments retract some of their subsidies, this story may read differently going forward. Even so, in Europe, governments remain confident that 15 percent of electricity supply will come from renewables by 2020.
Almost two-thirds agree that the right energy mix is yet to satisfy carbon emission reduction targets. For now, electricity consumption remains dependent on fossil fuel. Attempts to diversify into other sources will remain high on the agenda of both government and the energy sector.
This sector is dynamic. Nothing is certain and there is more change ahead.
