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Three developments that will dominate the energy industry in 2016

With 2016 knocking at the door, this is traditionally the time to take a look at the future. With most people focusing on the upcoming new year, I would like to look further ahead. Because all of our short term actions will determine what our (distant) future will look like. This is certainly true for the industry, where everyone is anxiously watching how the global energy system will develop. I expect to see three trends that will shape the industry.

Low oil prices result in smart technology
The low price of oil was the dominant theme over the past year, and will remain equally so for a while. The last few weeks, we witnessed the fastest price drop this year so far. A barrel of crude oil is now only about 35 dollars. This decline was partly due to the ruling of the Iranian oil minister of Iran, in which he announced that the country wants to produce and export more oil, now that the export sanctions have been lifted. (Companies may, however, still not do any business with Iran.) A prediction I made earlier.

Therefore, for next year, I initially expect to see a further decline in energy prices. Twenty dollars per barrel is certainly not impossible. In its wake, I see yet more austerity measures being taken by the producing companies, with personnel restructuring as the “easiest” option. But these are just palliative. Eventually, we will enter a future where the industry will use smart technology to work more efficiently and save costs. Automation of plants and factories tops the wish-list of the boards, or should be at the top. We will probably not be reaping the fruits of these until 2016, because in the conservative oil and gas industry, change is generally not so fast. However, the industry will be even more future proof as we look beyond one year.

Fossil and sustainable working together
It was a tough process, but we did it: there is a new climate agreement. At the Paris climate summit, world leaders recently agreed to limit global warming to 1.5 degrees Celsius in the year 2100. One of the biggest challenges is to reduce CO2 emissions. That won’t be easy, given the level of consumption that we have become accustomed to. In emerging economies, such as China and India, people are just getting a taste of the prosperity that fossil fuels can bring. I don’t think those two countries are willing to part with that already, in exchange for reduced CO2 emissions.

New technologies are the key to sustainability. Electric vehicles, solar and wind energy, biomass, smart grids, LNG (since this has 20 percent fewer CO2 emissions), heat pumps, CO2 storage. All feasible initiatives to become ‘cleaner’. To date, developing and implementing these solutions mostly costs money (grants) and innovative technology companies are looking for cost-effective business cases. Meanwhile, oil and gas prices are at such a low that the traditional forms of energy remain very attractive. In any event, chemistry and process industries will benefit massively, and are able to produce at low cost. However, for the major energy suppliers, oil and gas have such a low margin that I expect them to start investing in (sustainable) initiatives one by one. I hope and expect that the various disciplines will join forces. The ‘old’ fossil world has the knowledge and experience; the new smart technology companies have the speed and innovation capacity. If they work together, we can accelerate the move towards sustainable energy and climate targets will become achievable.

IT solves outflow problem
Ageing has definitely struck in 2015. For years we have experienced an outflow of technical personnel and knowledge, but now we are definitely in an industrial brain drain. The influx of new, young staff does not seem to offer quick relief. Many of our future employees are still at school or don’t seem to want to opt for the industry. We suffer from an image problem, with the younger generation thinking they’ll get their hands dirty in the oil and gas industry, or will be tinkering with machinery all day. Additionally, generation Z is looking for freedom, creativity and sustainability, apparently not expecting to find these in the industrial world.

To cope with staff shortages in the new year and beyond, I have more faith in technological solutions than in large numbers of new employees. Companies will need to get more productive with fewer people, and IT will play a leading role in this. A practical example of which I expect a lot: with better, reliable plant monitoring, metering and data analysis, we can go from reactive to predictive maintenance on plants. If systems automatically warn you in advance where maintenance is required, you’ll never have to do redundant work. You’ll need less staff on the floor, while plant availability goes up. It’s a win-win situation, enabling industrial companies to greatly increase their efficiency and allowing them to cope with the outflow of experience and knowledge.

As far as I’m concerned, 2016 will be a clean and smart year, in which we will finally undertake major steps towards a better and manageable (energy) future. What are your expectations for the new year?

Wouter Last, president Hint