As 2021 unwinds, the Oil & Gas Industry and the global energy landscape are experiencing significant shifts. After an extremely challenging year in 2020—wherein this sector experienced major disruption caused by simultaneous price collapse, supply glut, unprecedented demand decline, and a health/economic crisis—the outlook remains uncertain.

Aside from industry fundamentals, other forces remain at play. Amid shifts in major trends, such as emerging technologies, pressure to act on climate change, new regulations, changes in consumer demand preferences and investor activism, most experts agree that a permanent shift in the energy demand curve has taken place. Concerning fossil liquid fuels in particular, there seems to be consensus that demand will rebound to previous levels and grow, albeit at a slow pace, over the next decade and then decline gradually rather than suddenly, depending upon the regulatory pressure on emissions. However, long-term oil demand will remain pressured by several factors such as reduced growth in automobile demand, enhanced engine efficiency in road transportation, and appetite for electrification. As such, oil remains exposed to large swings in all scenarios developed by forecasters. Gas is the lone fossil fuel whose demand is expected to grow significantly in the next decades. Regardless of the outlook and the trends for energy transition, all scenarios have a common theme: that fossil fuels will retain their fundamental role in the energy sector for the next 30 to 40 years.

Recovering From 2020

Worldwide, the Oil & Gas sector experienced great financial turmoil last year during the pandemic. Hundreds of thousands of workers lost their jobs, others were laid off and refinery sites in the U.S. and abroad were permanently shut down. As demand recovers to previous levels, fewer refineries are available to produce the fuels required, and, upstream, about 40 million barrels per day of new production are needed despite severely restricted capital expenditures.

Thus, while the lion share of the attention is focused on electricity, “gray” vs. “green” hydrogen and renewable energy, the 131 remaining refineries in the U.S. still need to refine the petroleum products which drive more than 90% of all transportation; the plastics utilized in PPE manufacturing; the isobutane, propane and propylene used as refrigerant for vaccines and medicines; and the naphtha used as raw material for polypropylene syringes. In addition, about 50-60% of all homes in the U.S. are heated by natural gas. The other half use electricity, though natural gas is responsible for nearly 40% of electricity production, too. In net, fossil hydrocarbons are practically everywhere. Given its role in supplying affordable energy, this sector is too important to fail.

The Path Forward

What then is the path forward for the market participants in the Oil & Gas space? Refining and Marketing independents and Major Oil companies may accelerate their pace to invest in renewable energy due to increased Shareholder pressure to go green driven by the Environmental, Social and Government (ESG) trend and government policies that reward renewables and penalize Oil & Gas. However, despite highly heralded green energy goals, Oil & Gas companies already have a business that is critical to the next few decades. As such, Shareholders and owners need to focus on creating value in the midst of these new conditions, as the industry is entering an era of intense competition and rapid supply response driven by technology.

In the case of refiners there is a heightened incentive to redirect efforts after last year’s turmoil to ensure short- and long-term success. All companies predictably acted to protect employees’ health and safety and to preserve cash, for example by cutting or deferring discretionary capital and operating expenditures and, in many cases, distributions to shareholders. As predicted, these actions were not enough for companies that were financially hard-pressed. Refiners will continue to experience wild swings in inventories, demand uncertainty and changes in the political climate which will continue to affect the stability of this sector. To adapt to these fluctuating environment, leading companies continue their focus on continuous improvement projects with high ROI and short breakeven or payback periods.

The pressure is ever mounting to extract all possible value from optimizing refineries and their supply chains and seizing new opportunities for margin improvement through digitizing refineries. At Trindent, we double down on our recommendation at the beginning of the year: “Refineries should be focused on creating value through precision, limiting product exceedances of minimum-quality requirements by improving product-demand forecasting, blending processes, or using in-line measurement tools. Refiners with optimized operations planning spend less on the components that make up their finished products.”

To operationalize our recommendation, here are some of the areas we have focused on with our clients:

• Identifying the value and finding the “cash register.”
• Setting up the right processes and workflows, including identifying and redeploying the team’s roles and responsibilities.
• Integrating existing software and hardware solutions (e.g., process design, supply chain planning, refinery scheduling, advanced process control, data historians and predictive asset performance management) with real life data and operations to ensure that our clients extract the full value of the tools they have invested in.
• Making sure that advanced technologies such as in-line analyzers have proper modeling plans, as well as calibration procedures, to ensure property analysis precision and profitability when utilized in conjunction with Distributive Control Systems (DCS) Advanced Process Control strategies for blending refinery fuels.
• Making sure there are appropriate diagnostic monitoring tools to ensure in-line analyzers quality control.
• Ensuring a robust Quality Assurance program in data measurement activities, as well as promoting communication between the data testing facilities and operations for validation programs and control & optimization processes.
• Proper use of statistical tools and models to ensure appropriate input to Advanced Control tools such that the tools are tuned and used with unclamped limits for optimization.
• Ensuring proper maintenance (preventative and conditions-based) for analyzers and field instrumentation that are part of the refinery digitizing efforts.

Conclusion

In the longer term, significant shifts in the sector’s fundamentals will continue, and government policies will drive the magnitude of the transitions. Meanwhile, success today and in the coming decades is contingent upon developing efficiencies and rapid responses to ever changing conditions. Trindent is uniquely suited to helping our customers achieve those goals and reposition for the future.