It’s hard to predict the future for any industry, let alone one that’s as cyclical as oil and gas. But Amy Myers Jaffe, the former chair of the Future of Oil and Gas at the World Economic Forum (Davos 2019), has spent her career calling out potential disruptions.
Though we can all see how much the world is changing every day, it’s still hard to picture what things will be like. For example, if you asked someone 50 years ago whether people will stop owning cars, most would have thought that idea was ridiculous. In today’s era of ridesharing, urbanization, and epic traffic jams, this seems entirely possible.
Jaffe examines all types of trends—whether they’re consumer-driven, market-driven, or geopolitical—that could have an impact on oil and gas businesses. She goes beyond the predictions of typical Silicon Valley futurists and applies her expertise to translate how these trends will specifically affect the oil and gas industry. ASUG News had the opportunity to talk to Jaffee and discuss trends and what it takes to adapt to them.
Ann Marie: What are the trends that oil and gas companies need to be actively planning for in the next 12 to 24 months?
Amy: You have two things happening at once. One is that we’re going to be in a very volatile situation when it comes to oil and natural gas prices because there’s so much geopolitical risk, and different countries are transitioning their strategies. That’s a backdrop for more uncertainty than we’ve seen in the past. On top of that, we’re experiencing rapid technological change. How companies address and cope with technology is going to separate the winners from the losers.
Ann Marie: How much are consumer behaviors and purchasing patterns driving these disruptions?
Amy: What we’re finding is the democratization of consumer choice. There’s a new generation that looks at priorities differently and has access to digital services that offer new options. In the old days, I might have achieved a certain income level and would say, “I can afford a car now” or “I’m going to buy a home.” It’s not just that we have ridesharing. We also have services where I have an app that would allow me to borrow somebody else’s car for 20 minutes.
Increasingly, I have alternatives for the kind of fuel I want in my vehicle or that I’m going to use in my home. I can decide that I don’t like the service from my utilities, and I can put together an island system for my business where I’m going to not be exposed to the ups and downs of utility costs. I can island myself if there’s a hurricane, or I can island myself on a very hot day if I fear there’s going to be a brownout.
I call that democratization in the sense that no giant business—not a corporation, not a utility, not the government—can tell me exactly how to manage my transportation or my electricity. That means companies such as utilities that have never considered consumer preferences now have to think about how they’re going to serve those needs. How will they compete against new entrants that are more in tune with how a younger generation of smart device users thinks about transportation, housing, or purchasing?
Ann Marie: How much attention should oil and gas companies be paying to startups that are essentially digital services—for example, Booster, which shows up to your house and fills up your gas tank for you?
Amy: Let’s break down where that comes from first. When I was at the University of California, Davis, we did a lot of research on the motivation for the early adopters of electric cars. And one of the things we found is that women told us they did not feel comfortable going to gasoline stations. Our research showed that when a woman has the option to do her errands and then come home and plug in the car, that’s a big plus. I don’t have to go anywhere, I don’t have to pump anything, I don’t have to pay anyone, and I don’t have to worry about who’s in the convenience store.
There are real changes in how people view fuel. A lot of people are not driving a car because they don’t want the inconvenience of having to fuel it or deal with traffic. Am I really going to drive to the mall, or am I going to live in a city and walk to the store? Or will I order what I want online? And would I ever drive to the store to buy a staple like dog food or toilet paper when I can just put it on automatic delivery?
From an oil point of view, if my orders are automated and Amazon knows when they’re delivering them to me, it can use optimization programs to minimize the fuel this requires. It’s going to organize all the deliveries with an algorithm to eliminate vehicle miles traveled and deliver the packages in the most efficient way possible. Even the way the industry views freight and how fleets will use fuel is going to change.
Ann Marie: Let’s talk about how the economic markets and geopolitical risk that you mentioned will influence the changes that oil and gas companies will see in the near term.
Amy: One of the things that’s happening is certain oil and gas companies are looking to do short-cycle projects where I can make my investment and get my first production in months while knowing exactly where my market is.
That responsiveness is changing the patterns for boom and bust cycles. If there’s an up cycle for 10 years because people are doing giant projects that take billions of dollars and many years to bring online, then I’ve got plenty of time. In a world where my competitors can bring on new fields and new production in six months, then my emphasis is on getting my costs down and being as nimble as possible.
Digital is going to be a critical part of that. I don’t want to waste any assets in my supply chain. I want to reduce costs using automation. I have to worry about environmental pressures, so I need to make sure that I’m using just the amount of water I need and not a drop more. I want my sand, my water, my parts, my tools to show up exactly at the moment I need them. I need to keep my operations running efficiently. Today I have the digital ability to track and coordinate work in a way that previously wasn’t possible.
Ann Marie: In your opinion, which of those factors is moving the needle the most right now?
Amy: Automation is going to be very important. It’s going to drive a lot of change because the skills of our workforce will need to be different. Getting prepared for future workforce changes is something I think oil and gas companies have not grappled with enough yet.
You have generational issues that have come with the workforce transition, and some companies are dealing with this better than others. And you can’t leave out 50% of the workforce because you don’t have a diversity-friendly environment for women. I think companies are starting to understand that the culture of the future business world is going to be one that has to be inclusive. They’re going to need a different kind of skills that only a diverse team can bring together.
Ann Marie: We did research with SAP customers in the oil and gas industry and learned that they collectively have a desire to make their data work a lot harder to drive better business decisions. How can data become a game-changer for oil and gas businesses today?
Amy: The potential to use data constructively is just exponential. It can help you get in touch with your end customer if you have the data available to understand how people really use energy, what their preferences are, what mobility means to them. Looking at the statistics for oil demand for the last 30 years is not going to get you there. You have to understand how people are going to move themselves about in the urban environment.
The U.N. and others predict that by 2050, 80% of the world’s population is going to be urban. When you think of the advantages that a digital company like Uber has with the behavioral data on how people get around or that Amazon has on what people are buying, you realize the power of that.
And without the right operational data, I can’t guarantee that I can be as competitive when I’m going to drill blind, versus an organization that not only has put together data on its reservoirs, but it has developed a sophisticated model to analyze that data. Again, going back to workforce issues, I need not only the geophysicist, geologist, or petroleum engineer—I need someone with advanced modeling skills who can take this data and put it in a framework and turn it into actions my business can take.
Ann Marie: There are so many different factors that can affect the consumption of oil and gas, right?
Amy: Right. This is how I would put it: Consumers previously had no choice but to own a car running on gasoline that they’d have to drive to fill up where the oil companies put a gas station. Now, it’s harder to dictate that to consumers. They can buy an electric vehicle and plug it in at home. They can use a ridesharing service and not own a car. They can choose to not go to stores and have merchandise delivered instead. And the oil industry must adapt to this new world.
Don’t miss your opportunity to hear about trends in the industry from oil and gas SAP customers at our virtual experience ASUG Best Practices: SAP for Industries in September 2020.