Overcoming increased demand, resource shortages and aging infrastructures
Energy expert discusses how to overcome broad and complicated challenges with analytics
Energy security. Hydraulic fracturing. Rolling blackouts. These terms are popping up in mainstream media coverage of the energy industry, but what do they mean for the consumer, and what do they mean for the cost and availability of energy resources in the future? We asked Frank Møllerop, Vice President of Oil and Gas at SAS, to discuss these issues.
Let's start by talking a little bit about the market forces that are pressuring utilities and oil and gas companies to adopt a more analytical approach.
Frank Møllerop: What we see in the market now is that demand for energy is still growing. The primary force behind that is the fundamental change in the demographics. There are 3 billion people who will enter the middle class in the next few years, and the demand for energy that they will bring is big. That demand is possibly the largest fundamental change to mankind since the industrial revolution. The second area I see as important is the various differences in regions. Energy intensity in the OECD countries is dropping. When the GDP is growing, the energy demand is growing less than the GDP. But in Asia Pacific it's the reverse situation, because there are still some efficiency gains that the industry needs to solve. So deeper demand understanding, reliability and of course the environmental agenda are the key drivers behind the energy focus these days.
In the US, the improvement in exploration technologies and the increased demand for energy resources has made some unconventional resource plays more financially attractive. How can analytics be used there?
Møllerop: Yes, shale gas is a very important agenda for the industry going forward, and shale gas has the potential to replace a lot of coal-driven electricity generation. The US is in a very fortunate position of having lots of shale gas available. The key fundamental challenge that the industry is facing is to make sure that we are able to extract these resources in a safe manner. There's been a lot of public debate about adding liquids and the water consumption around it. So that transparency is very important, and that's where analytics and reporting comes in. In addition, we see a potential in drilling and well optimization in the shale gas play. That's also a role where analytics can add a lot of value.
Tell us a bit about the work in the US on shale gas, and how that might influence what's going on in the rest of the world for unconventional resources as well.
Møllerop:In the shale gas play, the US is going to be seen a little bit as the pioneer. There are a lot of other shale gas initiatives going on in the world, but the US has a huge reserve of shale gas. And what we can see happening is that shale gas will replace coal in electricity generation. And that's more environmentally friendly than burning coal to produce electricity.
If the buzz is around unconventional resources in oil and gas, on the utility side it's about smart grid. The smart grid is a collection of new devices, new infrastructure, and new ways of looking at and managing the information around the value chain for energy and electricity. Where are you focused in this big world of smart grid?
Møllerop: We are focusing on three areas for smart grid. First is the customer side: What we're seeing around the world now is deployment of meters that are going to go inside the homes of hundreds of millions of people. In Europe alone, we talk about 250 million meters being installed in homes by 2015. The purpose is to create the ability to control your own power consumption. You can preprogram your consumption to run on certain schemes during the day, and it also gives you complete control over the electricity bill. That's very important for the consumer. So that's one area where analytics will offer a huge contribution in the industry.
The second area is the grid side. What we will see now in the coming years is a lot of modernization on the grid to allow for more renewables and new sources to be attached to the grid. The grid was built originally just for one major power source to generate electricity, but now there will be a lot of micro-power plants being brought on, which is going to create a huge area for balancing the grid correctly to meet the right type of demand.
The third area we are focusing on related to the grid is risk and trading. Around the world, we're now seeing a lot of deregulation of the utility sector and utility companies trading electricity to where the price is the highest. Now, when the grids are connected across the continents, that makes the physical market actually possible. So risk and trading is a huge space for analytics going forward.
You mentioned the integration and connectivity of renewable resources. Can you tell us about the ambitious 20/20/20 targets in the EU? How might utilities view that as a challenge and an opportunity moving forward with this new connected grid?
Møllerop: Simplistically put, the EU's 20/20/20 challenge has set goals for Europe to reduce power consumption by 20 percent, reduce the greenhouse gas emissions by 20 percent and make sure that 20 percent of electricity generation comes from renewable sources. To do it by 2020 will be difficult, but there is some very substantial progress being made in that area. First and foremost, you see the need now for the EU and the rest of the world to try to be more energy efficient, and the smart grid and smart metering agenda is definitely helping everyone do more but with less power consumption.
How do you see "big data" challenges playing into this industry and what can companies do with all of this data from the connected grid?
Møllerop: What you see both in the oil and gas industry and utilities is a very old infrastructure. And now, as the digitization agenda is moving forward, modern equipment is being installed that brings as a side effect a lot of data. This is also an issue in other industries, but the energy sector has been falling a little bit behind the curve in terms of taking advantage of the modern technologies. But now it's happening, and all of this big data gives unprecedented capabilities to make better decisions much faster and much more accurately than what we have seen in the past. And that's a huge game-changer for the whole industry.
Some of the research I've seen about planning for this new grid also has a big expectation for electric vehicles, microgeneration, solar and all kinds of new connected technologies. How do you see that shift playing out?
Møllerop: Electric vehicles are a very interesting concept because plugging them in to your local power makes them part of the grid. We can even use batteries on electric vehicles as a temporary storage of electricity and tap and generate electricity out of those batteries. But the side effect, of course, is that you take away the focus from oil and gas but then generate more electricity instead. This means you will experience a growth in electricity production, which needs be compensated for. We still need to work on how we generate clean electricity. And that's the question that still remains unsolved, actually.
From your perspective, how will an energy company know if it is effectively using analytics to guide decisions in its organization?
Møllerop: The industry faces two fundamental challenges in taking advantage of analytical capabilities. First, it belongs on the executive agenda. It's very important to recognize that this will not happen without the leaders taking accountability for it. The second is that this industry will continue to be very engineering-driven, and engineers have always worked inside their silos. So now it's time to take down the silos and encourage collaboration. Analytics will be the fundamental driver for making that happen, because analytics allows everyone to see into each other's domain-specific areas and try to optimize things across the value chain.
What are your major predictions for this industry over the next five years?
Møllerop: That's a million-dollar question, but I would say that we will see three major trends. The first is improving efficiencies. In the oil and gas sector, the remaining reserves in the world are contained by the national oil companies, not by the Exxons, Mobils, Shells and the Chevrons of the world what we call the super majors). The nationals are controlling close to 90 percent of the remaining reserves. So for these other companies, you will see a big race to get closer and closer to those reserves and get hold of them. The industry will probably respond by becoming more efficient and offering those capabilities to the nationals as a tradeoff for the super majors to get into their agenda. That's a very interesting game. That space is still going to be very aggressive in the next few years.
The second trend we will see is reliability and integrity issues. There's a lot of examples now around the world, even here in the US, that when you have outage on the grid or the distribution system, it creates fundamental societal problems, so integrity and reliability are very important. As I mentioned, there are 3 billion people who will move into the middle class, and they need electricity, and it needs to be reliable. In China and India, those types of challenges are just massive.
The third is obviously health, safety and environment, which is fundamental to the existence of these industries right now. And we are not there yet. So it's still a while until that will be solved.