Next generation downstream. Looking ahead at the industry’s future. And what needs to change

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The future of the downstream industry: a vast, uncertain horizon, marked by new technologies, and the drive for new business models.

At a recent executive virtual round-table, chaired by José de Sá, Senior Partner in Bain & Company’s Rio de Janeiro office and Global Head of O&G Downstream, business leaders from Wood, Becht, Borouge, Nayara Energy and PETRONAS shared their predictions on what lies ahead.

The COVID effect

2020 has reset the stage for the downstream industry, and operators are re-assessing and re-evaluating their roadmap to recovery.

“COVID has accelerated change [and] we’re going to need to be a more digitally connected world”, stated Robert Ohmes, Division Manager, Strategic Business Planning at Becht. “The energy transition is in high gear [and] this is the time for the organisation to look at what they need to do to sustain the business.”

Andy Mills, VP Integrity at Wood, agreed that “the last couple of months has seen a real significant change in terms of digital transformation”. He believes that this is down, not only to new technologies, but also to new generations of “more digitally savvy people in the business”

When it comes to the future, disruption has removed benchmarks, reset operators’ goals and re-fuelled their ambitions.

“COVID caught industry completely unprepared”, summarised Ashutosh Deshpande, VP, CEO’s office at Nayara Energy. “There is not one single answer [but] a wide range of expectations”

Breaking down the digital buzzwords

This hyper-connected future comes fully equipped with its own set of digital buzzwords, as Saiful Anuar Bin Mohd Mokhtar, Principal Engineer (Process Design), at PETRONAS explained.

“Digitalisation is a hot topic nowadays. [You have] Big data, Cloud machine learning, augmented reality… this is where the state of the art digital transformation is”

But he cautioned, buzzwords always be linked to a greater business goal. “For us it is always related to sustainability [and how to create] energy solutions in a responsible and positive manner”.

Mills added that even with technological advances resulting in a 70% reduction of humans needing to “touch the data”, people are still at the heart of refinery 4.0. “A lot of digital initiatives don’t succeed”, he explained. “Cultural change is needed to make better use of information”. He believes that digital progress is down, not only to new technologies, but also to new generations of “more digitally savvy people in the business”.

Demand driving sustainability

If it’s people shaping progress, the most important person is the customer. Jonatas Melo, Senior Vice President, Asia South, Borouge, described a value chain where the “customer is driving change”. From his view, this involves “new crude to chemicals new technologies, demand for more solutions…”, and in a market where sustainability is a shaping the energy transition, the need for clearer benchmarking and “certification for additional resources”.

Ohmes believes that it is not just about certification, it’s also about sustainability at scale. “The role renewables plays is going to be critical. The part we need to solve is to scale up tech, to get bio-crude into facilities and get processed”.

A hydrogen-fueled future

While renewables are the fastest-growing energy industry, the hydrogen revolution is following closely behind.

“Hydrogen is going to be absolutely critical”, confirmed Ohmes. “Not only as a fuel, but in transforming those biogas and biocrude molecules into liquid fuels. It’s a really interesting time for refiners to look at other optionalities that they have”.

For Mokhtar, hydrogen is part of the wider move towards a more sustainable crude to chemical process. “There are a few changes and opportunities that can be made… to help operators in cutting emissions and meeting sustainability goals”, he described. “Cutting waste in steam generation, steam turbine generator and solar generation, technologies that can be explored to produce blue or even green hydrogen”.

The different shapes of recovery

Different regions will recover at different rates. Deshpande noted in the Middle East, where “capacity is higher than growth in demand”, they are “trying to invest in downstream”.

Melo cited geography – and geopolitics – as one of the major dimensions influencing the shape of revival: “in China for example, we are already seeing a V-shaped recovery”.

There are, however, the panellists agreed, certain movements that will pervade worldwide.

“[There are] certain predominant trends emerging”, observed Deshpande. “Moderating oil demand, expanding renewables, efficiency gain. [There are] new capacities being more integrated”.

Big challenges, big steps

The biggest question clouding the future of the downstream industry is whether fossil fuels have a future at all. The panellists agreed that while the road to recovery is landmarked with challenges, the FUD surrounding fossil fuels in unfounded.

“Between now and 2050, global demand for energy is going to increase one and a half times”, declared Ohmes. “That’s a significant change, and at the same time we’re meant to be reducing CO2 emissions. Refining is not going away. From our view, that peak of capacity is going to hit around 2025, and at that point we’re going to need more refining capacity”

For Melo, it’s important to remember that these are “exciting times”.

“Whatever you look into, whatever aspect of the business, there is change”, he asserted. “[In] petrochemicals, [in] refining and oil integration. The push towards circularity is here to stay [and] with change comes opportunities. The question is, what is the right way to capture [them]?

The pandemic sent a shock through the sector, but the wider energy transition will be a slower, more purposeful evolution. For those who want to emerge as leaders, the call to action is now.

As the session closed with the panellists looking ahead to the start of a new era, Ohmes left us with a sobering, and stirring, thought.

“This is going to be a transition, not an overnight event”, he warned. “[But] if you wait even a couple of years to define your strategy , it’s going to be too late”.