PwC's New Energy Futures Report - What does it mean for METS?
Over 60% of Australian Mining Equipment, Technology and Services (METS) companies already supply into the oil and gas sector, with 37% of all METS viewing it as the most important growth sector for them during the tougher times mining companies are facing. PwC have just released their New Energy Futures report, which examines the transformation of the oil and gas sector. Austmine took some time to catch up with Mark Coughlin, Energy, Utilities and Mining Leader at PwC to understand what parallels exist between supplying to the mining vs. the oil and gas sector and how METS can leverage their capabilities to enter the sector.
The New Energy Futures report that PwC has just released discusses how oil and gas companies will need to rapidly evolve their business models to continue to thrive in the future business marketplace. Is this also true for suppliers in this market? How will they need to adapt?
As strategies and business models change within the major players in the oil and gas sector, we’re seeing major disruption across the entire energy value chain. This is forcing companies in that value chain to rethink where they’re going to play in it and how. Fundamental questions are being asked in both the big multinationals and smaller, niche oil and gas players about how their business will and should transform moving forward and what capabilities they should hold internally and what they should look to external markets for. The same questions therefore have to be asked by the suppliers: where and how are they going to play within this new value chain; what conversations are they having to understand what the operators are now looking for?
PwC expects to see a shift in how producers and suppliers work together, with more joint venture and strategic alliances coming to the forefront. Joint ventures have been part of the oil and gas sector for many many years so this is nothing new at one level but the nature of these relationships are likely to change in the near term. Suppliers must adapt to this new energy future, but not in isolation. Take the time to evaluate who you’re currently working with, talk to other players and form a plan on where you will fit into this future based on your company’s strengths and capabilities.
How will this transformation of the oil, gas, and energy sector effect how companies work with their suppliers?
If we look at one of the major themes across energy, utilities and mining, it’s all about productivity. All of these sectors have undergone a massive productivity push over the past few years, which has meant reducing cost as quickly as possible to respond to volatile commodity prices and regulatory pressures. That is a given across these industries and I don’t expect that will let up in the next 2 – 3 years; possibly longer.
Post-GFC we saw many companies doing the “easy things” in regards to making their workforces leaner and generating productivity increases. Now we’re getting to the “harder things”. Many of these are in relation to making critical changes in their supply chains and working with customers and third parties to optimise their businesses. This inherently has meant some different styles of relationship coming into existence between customers, producers and suppliers. We don’t see one form of relationship being dominant in the near future, but rather a mix of joint ventures, strategic alliances and more traditional purchaser/supplier engagements co-existing.
Another shift we see coming is oil and gas companies looking to further outsource some capabilities, looking to providers to do things they can’t do themselves as productively or as effectively as can be done by specialists. Therefore, suppliers should be sure they understand not just their fundamental capabilities and skillsets, but what else can they offer that will provide additional value or support to clients? Those suppliers who understand their own business well will succeed in this new energy future, but those who look to jump into the oil and gas sector without doing their homework will struggle.
Many Mining Equipment, Technology and Services (METS) companies have identified the oil and gas sector as one of potential expansion during the tough mining economy. As PwC’s leader for Energy, Utilities and Mining, do you see a natural synergy between servicing these two markets? Would you have any advice for METS looking to step over into the oil and gas industry at this moment in time?
This is a really interesting question, as we see a synergy, but not necessarily a natural synergy. Both are extractive industries, so you can see the logic of assumed similarities between the two. Certainly, there are some similarities. However, managing the ore that comes out of a mine site is very different to managing hydrocarbons that come out of an oil and/or gas reservoir. Fundamental differences in procedures exist between the sectors. A prime example being safety which is the number one priority in both the mining and oil and gas sectors but each requires very different approaches to managing safety and risk more broadly. If you cannot demonstrate how you can conform to the standards required in the oil and gas sector, for example, you will not operate in this sector.
Therefore, METS companies looking to break into the oil and gas sector for the first time need to make themselves aware of the critical differences between the mining and oil and gas sectors eg operations, safety, risk management, etc. A deep understanding of your strengths and capabilities, as mentioned previously, is also needed. Do these capabilities line up with what the oil and gas sector needs? If not, how can you acquire the capabilities needed in order to become credible? Or perhaps there might be a strategic partnership that you can form with another supplier?
Here in Australia, where would you see the most opportunity for suppliers in the energy sector over the coming 12 – 24 months? In oil and gas, or water, or renewables? Why is this?
This is a difficult question to answer, as there isn’t one winner in these to pick. As I mentioned, there is a lot happening around the productivity agenda for most companies across all of those sectors but there are also pockets of growth to consider. This is providing a variety of opportunities within each of them. Renewables as an example, will almost certainly see an increase in construction projects over the next few years as the economy moves to a lower carbon energy footprint.
In oil and gas, productivity is the main game in the short term, so if you have a proposition for a market leading product or service around reducing cost or doing things differently, you should be able to capitalise on some fantastic opportunities. It is also worth considering how you might help oil and gas companies transition to new operating environments post the major gas projects in WA and Queensland.
Within the broader utilities industry, opportunities exist around productivity but also around new technologies such as solar and battery storage. The issue squarely in the sights of many is how to achieve big cost reduction targets quickly but also how to grow new products and services in response to the disruption playing out across the sector. A very challenging time indeed! New players will again have to understand safety and specific capabilities requirements though. The utilities sector is very different to mining and oil and gas.
Therefore, the great news is that opportunities for smart and agile suppliers exist across all subsectors of the mining and energy industries. The exact opportunity depends upon your business offering and your ability to translate across sectors.