How will the digital revolution transform the energy sector?

There is a core paradox at the centre of the global macroeconomic and geopolitical landscape: economics is becoming more global and politics is becoming more local. The global economy is more interconnected than ever before.

For example, the ripple effect of China’s economic slowdown is impacting commodity-exporting countries. At the political level, we’re seeing more and more local political reaction to current geopolitical concerns. The rise of right-wing nationalist parties, the call for greater sub-regional independence, and the decline of trust in global institutions are all pointers of this political trend to greater localism. Today’s world is one of mixed signals, which creates a perception of uncertainty and volatility.

But one trend is clear. The speed and scale of the digital transformation is impacting multiple industries. The digital agenda is being driven by a combination of technologies from cloud, analytics, mobile, to cheap sensors. Together, these technologies are putting data and intelligence at the centre of new business models. Industries, companies and business leaders are grappling with a world that is more volatile and more complex, yet demands greater agility, more speed, and more digital competence.

The digitization of energy

These trends are impacting the energy sector. Much of the sector’s focus has been on the oil price dynamics of supply and demand, and the implications for capital efficiency. The continued high production rates are driving up reserves of crude in different parts of the world and forcing producers to look hard at production and asset productivity.

Digital is also affecting the supply and demand of the sector in different ways. There are four trends that we see playing out consistently across all markets: changing patterns of consumption, new ways of optimizing assets, cross-industry partnerships and the greater use of industrial platforms.

The online world is changing patterns of consumption: less ownership and more pay-by-use. Cars in cities are being rented by the hour; new insurance models are now based on actual time at the wheel; and cars are becoming data platforms with self-diagnostics, satellite navigation, entertainment systems, and links to critical infrastructure and traffic systems to reduce city congestion. Smarter cars, smarter homes and smarter appliances will all impact on the demand for energy.

Much of the change will be enabled by connected devices: these devices can provide information in real time. It is the combination of real-time data and analytics that enable assets to be optimized more effectively. This approach applies to optimizing engines on a fleet of aircraft, to managing the performance of lifts in office blocks, to improving the transparency in global physical and digital supply chains on spare part availability.

New industry partnerships are being formed, as large incumbent organizations recognize that they need access to more and more digital skills in their workforce. Data scientists and engineers are critical skills that will be in strong demand as the world becomes even more data intensive.

Digital technologies will help with the loss of critical skills in the energy workforce. The growth of wearables will help upskill workers operating on complex equipment by guiding them through technical procedures, while new online learning materials will help with rapid reskilling and upskilling. Digital is blurring industry boundaries, as new consortia are being formed to provide new integrated pay-by-use services. For example, a telecoms company can now be a telecom provider and be part of different consortia providing energy, automotive and healthcare solutions.

Big opportunities ahead

Energy is known for being an industry with a long-term capital trajectory, an industry where it takes time for change to be felt. The combined effects of lower oil prices and the speed of digital is transforming the energy value chain.

The supply side of the industry is impacted by the ability to implement real time, remote control asset management and predictive maintenance to extend the operational efficiency of assets. This is becoming even more important as the portfolio mix becomes ever more diversified with the growth of renewables.

On the demand side, changing patterns of consumption will not dent the long-term upward demand for energy as populations rise, but it will change patterns of demand. Digital represents both an opportunity and a challenge. It can improve capital and labour efficiency, improve capital productivity, upskill workers and create societal benefits through more predictability and greater energy security.

But there will be challenges: new skills will be required and data security will become even more important. Energy industry dynamics will continue to be shaped by demand and supply. But digital represents a powerful catalyst for those companies that can harness its capabilities.

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