MARKET OUTLOOK
Energy Sector Outlook ENERGY SERVICES HAVE OPTIONS IN A DECARBONIZED WORLD, BUT THEY HAVE TO CHOOSE THEIR PATH QUICKLY By Reid Morrison, PwC
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s governments, consumers and businesses make emissions reduction a front-and-center priority, companies across almost all sectors will face fundamental changes.
to a recent PwC survey. While we certainly see great change on the horizon for the hydrocarbon industry, it’s well documented that the need for hydrocarbons nationally and globally will persist, though to varying degrees in different regions. According to the IEA’s projections of hydrocarbon demand and production, this will likely be the case, especially in regions where oil and gas demand is expected to increase over the next two decades — and even in those where diminished demand is expected. Just consider, for example, that India’s energy consumption alone is set to nearly double with oil demand lifting to 8.7 million barrels per day in 2040 from about 5 million in 2019, according to IEA forecasts.
Investors and society have increased the focus on ESG. This has accelerated the move to lower the global carbon footprint. Many players are responding by diversifying their core hydrocarbon business to lower-emissions businesses or are announcing plans to do so. This places pressure on the energy service sector to align its services to the changing needs of its traditional customers. In the least, this will mean finding more efficient ways to find and produce hydrocarbons. For many, it could mean a pivot to new sources and THREE PATHS TOWARD A NET ZERO WORLD forms of energy, such as entering the renewable and For many energy services companies, the realignment alternative energy space and other low-carbon plays, will mean developing new business models. Looking into including services and technologies for reduction of the future, we see three main paths: a pure-play oil and methane emissions, carbon-capture utilization and gas focus, gradually pivoting to low carbon, or making a storage (CCUS), biofuels, hydrogen fuels, geothermal complete transition to low carbon. Your choice will probenergy, off-shore wind power, energy storage — or even ably hinge on examining whether core capabilities could electric-vehicle (EV) charging. Some will be able to adapt and should be used in other low-carbon adjacencies — and may even thrive. beyond the oil and gas secFor most energy services tor. Articulating an investor companies, the momen“We expect more energy services proposition will also influence tous push toward net zero which path your energy serbusinesses will be looking for value emissions likely augers vices company should take. in new and unlikely places.” enormous transformation Let’s look at the choices. over the next decade. We’re Pure play oil and gas: already seeing the groundIt probably won’t be busiswell of that change. ness-as-usual, even for energy services companies that The IEA’s roadmap to net zero by 2050 attempts to plan to stick to traditional oil and gas services. They’ll reconcile the changes to the global energy system need- need to lower their own emissions footprint in order to ed to provide reliable, affordable energy and to meet help lower their customers’ Scope 1, 2 and 3 footprints emissions reduction ambitions. It calls for 90% of all — and perhaps even to retain a license to operate. power to come from renewables by 2050 and a ramp-up They’ll also need to invest more in efficiency-enabling to $5 trillion in decarbonization investments by 2030. It technologies to improve margins. While new opportualso underscores the extent of disruption the scenario nities in rig construction, drilling and field development could signal to energy businesses. may decline (especially in North America and Europe), This era of disruption, however, has been in the air for we expect that energy services companies will neversome time. Executives across industries grasp the imtheless experience increased demand for lower carbon portance posed by the growing net zero imperative, with footprint production services and equipment, such as 69% of CFOs agreeing that coordinating ESG data and more efficient pump and equipment technology. Services information across their company is a priority, according companies may see more demand for traditional prod10
Well Servicing Magazine/July 2021
