Digital technology can be implemented to improve all aspects of the O&G business, including 'just-in-time' maintenance of storage tanks such as the one in the picture.
Petronas is now in the solar energy space and is on the lookout for wind energy investments
In September last year, global research firm Gartner said in a note that oil and gas companies potentially face a decade or more of “unpredictable, disruptive” market conditions.
The gradual decline in benchmark oil prices since late May has served as a reminder that volatility remains the prevailing theme in the oil and gas sector.
In the foreground, traditional forces like geopolitics and global economic uncertainties continue to influence demand and supply while in the background, consumers are leaning towards cleaner energy as climate change becomes a growing concern.
But instead of staying conservative, oil and gas companies could start off on their growth path now if they have a clear direction.
Indeed, national oil company Petroliam Nasional Bhd (Petronas) intends to take full advantage of the shifting industry trends.
The group recently set up its gas and new-energy division with executive vice-president and CEO Adif Zulkifli taking the helm as it expands into renewable energy and the liquefied natural gas (LNG) segment.
“Society’s demand these days for cleaner fuel, coupled with the [popularisation of] climate change policy, has affected the regulatory environment,” Adif tells The Edge.
“We believe these are some of the key disruptors in the market that will promote more usage of gas and cleaner fuels as a whole. Because of society’s demand, there has been tremendous advancement in technology in the last couple of years. Solar energy is becoming a lot more accessible and affordable … Gas is also a function of technological breakthrough.”
Capturing the demand for cleaner fuel
Climate change policy has, among others, resulted in the enforcement of the IMO2020 regulation to limit sulphur dioxide emissions from ships beginning next year. To comply, vessel owners could either use the costly low-sulphur fuel or install scrubbers to reduce the sulphur content of exhaust fumes.
But increasingly, newbuilds are relying on LNG for propulsion — made possible by lower costs for smaller-scale LNG storage and the abundant supply of gas, thanks to the revolution in shale drilling technology.
Recall that the shale boom in the last decade was previously unkind to gas prices, making investments unattractive. “But because of the shale revolution in the US and North America, these countries have been able to unlock a lot of gas reserves, to the extent that the US has enough gas to last it for 200 years,” observes Adif.
With more market participation, gas utilisation is also slated to increase in the long run. In anticipation of that, Petronas is experimenting with new services to cater for new kinds of demand for LNG, including ship-to-ship LNG fuelling, he adds.
“Nowadays, we can transport in smaller ships … We recently did a ship-to-ship transfer where LNG cargo from Australia was put into smaller ships to be delivered to different locations in inland China that were accessible by smaller vessels that could go upstream.”
The point is to create a niche position for the company to remain relevant as the landscape faces further disruption. “At Petronas, we don’t want to be just about selling LNG. We want to be in a position where we provide energy solutions,” stresses Adif.
Small-scale LNG storage benefits not only the marine industry but also the energy-generation sector. The fuel, which needs to be cooled down to -163°C, is now increasingly cheaper to transport, making it a legitimate alternative to other sources of fuel that are less environmentally friendly.
“We are also excited about the ability to store LNG in smaller ISO (International Organisation of Standardisation) tanks and deliver them by road to customers. Some countries like Portugal, Japan and China already have [the system]. We are looking into that.
“We are not targeting our current gas customers, which get their supply through pipes, but isolated users that probably rely on diesel. They will not only achieve savings but also use cleaner fuels,” says Adif, adding that storage and transport costs have come down to a point where consumers can now achieve 10% to 20% cost savings by switching to LNG from other fossil fuels like diesel for power generation.
If you can’t beat them, join them
The demand for cleaner fuel has also translated into an inclination for renewable energy in Malaysia and elsewhere.
As technology improves further, renewable energy, particularly solar, has become cheaper to produce, to the point where it now makes sense to invest in it, says Adif.
In fact, in April this year, Petronas fully acquired solar energy end-to-end solutions provider Amplus Energy Solutions Pte Ltd, which manages 500mw of solar-generation capacity in India, the Middle East and Southeast Asia.
“We have come to the point where renewable energy can generate income. So, we will continue to build our portfolio in the sector as long as it brings us value.
“And by building our portfolio, we are also building our capabilities. We are getting comfortable with the business and getting to understand its complexities.
“Hopefully, when we reach that stage [when renewable energy becomes a prominent source of power], we are ready as a company,” says Adif, adding that Petronas is not discounting the possibility of venturing into wind energy as well.
In the meantime, inadequate battery storage technology and base load capacity from renewable energy provide an opportunity for oil companies like Petronas and Shell plc to continue to advocate the use of natural gas — essentially the cleanest of all fossil fuels — as a transitional fuel.
Digital is a tool for oil and gas companies too
Operationally, disruption comes in the form of digital adoption, which influences an array of processes from remote intervention to big data processing and supply chain monitoring, among others.
Adif concurs that as digital becomes the new norm, companies in the oil and gas, utility and renewable energy sectors that fail to effectively implement digital technology will lag behind their competitors.
“When it comes to processing seismic data, for example, some companies can do it in half the time for twice the volume … It is better to be an early adopter,” he observes.
Research, however, shows that the rapid technological advancement that has helped speed up growth in other sectors has not been fully adopted by oil and gas companies that are still investing conservatively after the last downturn.
Deloitte Middle East managing partner Bart Cornelissen in a June 11 note says the oil and gas industry is lagging behind all other sectors when it comes to digital adoption.
“Failing to fully embrace digital with a combination of technical and people solutions is costing the oil and gas industry as much as US$1.6 trillion in potential revenue,” he points out, citing Deloitte’s Digital Maturity Index.
Indeed, the gains that arise from digital adoption, when implemented correctly, outweigh the costs involved. Already, there are many examples of how digital technology has improved supply chain management and reduced maintenance costs.
“We use digital technology to map out all our activities across the LNG value chain,” says Adif. “If there are any bottleneck or disruption issues, they can be easily identified and addressed immediately.
“With digital procurement, instead of stocking ‘just in case’, now we can do stocking ‘just in time’. There is a big difference. We don’t have to carry additional inventory and it reduces our procurement needs.”
In the same spirit, companies can switch from rigid scheduled maintenance to condition-based maintenance with proper utilisation of big data. That, says Adif, can extend to predictive maintenance, which will further improve uptime of equipment and facilities.
He warns, however, that digital adoption should be done systematically. “In the last two years, it was about getting the whole Petronas workforce to be a lot more knowledgeable about digital.
“We had a programme for digital immersion … Because of the better understanding, many parts of our organisation are now taking advantage of digital technology with the view to lower costs, to be more efficient and enhance customer experience, and to remove human presence from unsafe working environments.”
Shifting contracting methods
Market volatility has forced stakeholders to develop new contracting strategies as well. This, coupled with the presence of alternative energy sources, has driven consumers away from long-term contracting when it comes to energy supply.
“As the market becomes more commoditised, customers want contracts that are shorter and smaller. So do suppliers,” says Adif.
Suppliers and consumers are increasingly engaging each other to cater for their respective needs, expanding from the traditional interaction of buying and selling the commodities.
Other contracting practices that are becoming more common are flexibility in the delivery of goods as well as periodic renegotiations, considering the volatile market.
Companies are also formulating new ways to invest in related facilities. “Now, you can do 50% of base load on long-term contracts whereas the remaining 50% will go on [short-term contracts], for example. We also co-invest in receiving (regasification) terminals with our clients in places where we deliver,” says Adif.
The oil and gas sector has been resilient for over a century because of how companies have been able to turn disruptions from the changing environment to their advantage.
And at the right pace and with the right collaboration, the industry can do it again. “Improving the work processes, implementing the technologies right — it is all about innovation,” says Adif.
Forging a new energy future
The Asia Oil & Gas Conference will enter its 20th edition on June 23 with the theme “Forging a New Energy Future” as the industry focuses on the future direction of the oil and gas industry and the next phase of energy transition.
The premier oil and gas event, which is held biennially, will feature a keynote address by Prime Minister Tun Dr Mahathir Mohamad with a special session by Minister of Economic Affairs Datuk Seri Mohamed Azmin Ali.
Visitors to the three-day conference can gain strategic insights from more than 30 speakers, comprising key industry captains and policymakers.
“While oil and gas continue to remain dominant elements in the primary energy mix, structural changes in the global energy landscape as well as geopolitical instabilities have caused a shift towards renewable sources to meet the rising consumption of and demand for energy,” says AOGC 2019 organising committee chairman Mohd Yusri Mohamed Yusof.
“Large-scale deployments of clean energy solutions and technological progress will be needed to decarbonise the energy sector. To accelerate the transition, collaboration and partnership are key in opening up new channels to develop innovative solutions and discover new approaches,” he says on the conference’s website.
The plenary sessions will touch on a wide array of topics, from the energy trilemma to the workforce of the future, tackling disruptions and energy sustainability, among other things.
Among the speakers from the local oil and gas industry is Petroliam Nasional Bhd (Petronas) president and group CEO Tan Sri Wan Zulkiflee Wan Ariffin, who will deliver the welcoming address for AOGC 2019.
Other speakers include Khazanah Research Institute senior research adviser Prof Dr Jomo Kwame Sundaram and Petronas executive vice-president Adif Zulkifli, Mazuin Ismail and Datuk Raiha Azni Abd Rahman.
AOGC was first organised in 1996 as an initiative of former Petronas chairman, the late Tan Sri Azizan Zainul Abidin, with a mission to gather professionals and experts from various backgrounds in the energy industry to discuss business prospects as well as industry-related challenges.
Since its inception, AOGC has delivered high-quality conference content, a vibrant exhibition marketplace and conducive networking experiences unsurpassed by any other oil and gas event in the region.
With more than 100 exhibitors lined up for the conference at the Kuala Lumpur Convention Centre (KLCC) this year, AOGC 2019 is expected to attract more than 2,000 delegates and 6,000 attendees.
AOGC 2017, also held at the KLCC, drew participants from 45 countries, nearly double the 27 countries that sent visitors to AOGC 2015.
Concurrent with this year’s event, organiser Petronas extended the AOGC Student Programme for the second time with an unmanned aerial vehicle (UAV) workshop held in the first week of May.
The programme, sponsored by Repsol and ExxonMobil, continues from June 22 to 25 with the key objective of nurturing new talent among secondary school students to keep abreast of Industrial Revolution 4.0 and to support the government initiative for science, technology, engineering and mathematics (STEM) education.
Conference goers can also participate in the AOGC 2019 golf tournament to be held on June 23 to mingle with industry leaders, service providers and conference attendees over a friendly game of golf with world-class golf facilities.
The Edge is the media partner for the 20th Asia Oil & Gas Conference