Oil and Gas Industry Adapting to Energy Transition in UAE
The Oil and Gas Industry and the Energy Transition
Climate change has already impacted the world at an alarming rate. As a global response to this ever-growing threat to humanity, the need to transition to a lower-carbon energy system has emerged, shifting how energy is produced and used around the world. These shifts, in turn, ripple down to businesses in the oil and gas industry, forcing them to adapt and create strategic responses to such.
The global energy transition impacts the oil and gas industry, prompting adaptation and strategic responses. While facing challenges, it offers opportunities for the UAE to diversify into renewable energy.
Those companies relying on fossil fuels for their products are the most impacted. They will need to navigate amidst the shift to carbon-reduction objectives which greatly affects investment decisions in the current global market.
However, the oil and gas industry still plays a meaningful role in the whole energy transition. This industry has the most significance in the UAE’s economic growth and development, approximately accounting for one-third of its GDP. Although the energy transition will cause a decline in the demand for fossil fuels over time, this is actually an opportunity to diversify our energy exports by shifting to renewable, and clean energy.
The Oil and Gas Industry At The Forefront Of The Energy Transition
In the face of crisis, we are forced to adapt at a rapid rate. The Oil crisis of 1973 forced the whole world to explore and dive into alternative sources of energy, which prompted innovations in renewable energy. Investments began to emerge. These investments included renewable energy generation, power retail, distributed generation, energy services, and EV charging. Success from these investments was varied. But over time, the momentum for these will not subside because of the steady growth in the demand for cleaner energy, and the subsequent governing inducements to shift to low-carbon continue to be reinforced.
To be able to lead in the energy transition, companies in the industry need to dive into investments centered on carbon emission goals all while being able to deliver shareholder’s expectations. Companies need to choose value chains to manage. Several potential areas to look out for include hydrogen production and development, offshore generation, and EV charging. There are four aspects to consider in creating value in the energy chain. If companies can get these right, substantial improvements in the base rate of return can be expected.
The customer-centric approach in business modeling is essential in answering the strategic when, where, and how questions in the energy transition- when to enter production when the demand is increasing, where to invest based on consumer’s current interests, and how to define and model the business.
As technology is constantly changing and evolving, customer expectations also follow. Businesses in the downstream sector of the oil and gas industry are good examples of modeling customer-centricity. With a deep understanding of oil and gas products and services provided, these companies can shape and support customers toward the transition to renewable energy. The secret lies in the integration of products and services tailored to the customer’s needs. One example is the formation of “dual fuel” where there is an integration of oil and natural gas. Dual fuel in engines has helped deliver financial efficiency for customers through the reduction in the consumption of diesel while delivering the same performance in terms of power density, transient response, and optimized operating range.
Taking Risks Amidst Market Volatility
The whole industry struggles with fluctuations in prices and unpredictability in the geopolitical and socio-economic aspects. These potential risks in turn cause market volatility and may lead to negative impacts on investor portfolios. It’s a question of “where to invest” and predicting the trend of the market.
The solution is to take a proactive approach to risk management. This shift is a step out of the comfort zone for most companies. But to be able to maintain a competitive advantage, companies need to adapt at a faster rate and utilize energy efficiency to mitigate risks in three aspects: Strategic risk, financial risk, and
1. Strategic risk management – Strategic risk involves responding to market demands, requiring companies to envision the future direction of the current market. Strategic risk management is concentrated on developing measures and methodologies to limit probable negative consequences resulting from the impacts of the risks taken.
2. Financial risk management – Financial risk involves volatility in returns, both the positive and negative expected ones. Financial risk management utilizes the transition into energy efficiency, in the effort to increase the demand for renewable energy.
3. Reputation risk management – Reputation risk has become overbearing in the modern world since more and more consumers are becoming aware of the global impact of climate change. Reputation risk management involves the proactive change and stance that companies take in response to the global call to energy efficiency.
Diversification of Profile
Oil and gas Consultants in the UAE can reduce their overall risks when they have diverse portfolios. Typically, a company that invests in only one energy source is at a higher risk of low return (depending on the impacts of the current market status) as compared to a company diversifying its profiles and expanding to other energy sources that translate to different risks (both positive and negative) in the volatile market.
Diversification can also be on geographic features. The market for different countries does not move the same way. Diversifying across geographies is a great strategy and also has a great impact on marketing and increasing the demand for renewable energy.
Excellence in Developing Business Competencies
Strategic investment for oil and gas companies is a crucial part of taking the lead in the energy transition amidst its fast-paced progression. To be able to compete and rise above the competitive industry, you need to equip your business with the right resources and capable workforce to stay ahead of the game. A workforce that fully understands the industry, and the energy transition is a significant investment even in the long run. Training and employing relevant engineers, and other technical staff to be able to work, research, and create innovations for your company will be beneficial in navigating and taking the lead in the transition towards energy efficiency.
The future of the Oil and Gas industry in the face of the global energy transition has a huge potential in terms of the breadth and diversity of how we can explore clean and renewable energy. And as the industry plays a prevalent role in the global energy mix, it also has the most essential role in the energy transition and the goal towards net-zero emission. Through great crises arise growth and development. Despite being a crisis faced by many companies in the industry around the world, the energy transition is actually a great opportunity for further improvement and innovation.