A conversation with Randall Cozzens, North America Sector Head of Energy, Utilities, and Chemicals at Capgemini
The month of April presented the energy industry with a so-called “double black swan,” as the ongoing public health emergency coincided with a collapse in oil prices. With the recovery timeline for both crises unclear, the entire sector is forced to manage through a period of unprecedented volatility and prolonged disruption.
Here we sit down with Randall Cozzens, executive global leader and North America sector head of Energy, Utilities, and Chemicals for the first in a two-part interview series to discuss how today’s crises may affect North American energy and utilities organizations’ day-to-day operations, transformation agenda, and energy transition efforts.
How are your clients managing this dual crisis thus far?
The energy industry, and the oil and gas sector in particular, is accustomed to working through crises. It’s a cyclical business; this is our third significant oil price drop in 15 years. As such, the industry is fairly well versed in what actions to take and how quickly to take those actions –everything from reducing capital expenditure (CAPEX) and operations expenses (OPEX) to consolidating the supply base and so on.
At the same time, this is a truly unprecedented situation. Projections estimate that global demand will fall more than 10% in 2020. Our clients may be accustomed to volatility, but not at this level. This is, without question, a historic level of disruption for the industry. There is growing sentiment that we will continue to experience depressed commodity prices for the foreseeable future and investment profiles will need to accommodate that.
What makes this particular situation so unique is that it is happening within the context of the global health crisis. Travel restrictions and industry-wide disruptions are drastically reducing demand across the globe – this at a time of oversupply. Earlier in April, the OPEC nations and NOPEC plus nations came to an agreement to reduce production by about nine million barrels a day. But even with that response, the price of oil remained quite unstable the following week and that is likely to continue through May. What makes this situation so challenging is that the crisis is on both the supply and demand side – and that’s an unfamiliar situation for this industry.
What advice would you give to organizations navigating this landscape?
Many of our clients have been in similar commodity price crashes before and so they are not exactly caught off guard, even though this is a truly historic situation. At a high level, the advice we are giving to clients is to try to keep the strategic flywheel, or the strategic agenda, engaged. This is difficult to do in the face of massive OPEX and CAPEX reductions. We’re seeing clients go through a prioritization of initiatives; some are going to the external market to look for price concessions. At the same time, they are not completely turning off some of the more strategic levers, which is good for the long-term vision of the organization.
In terms of prioritization, are there any areas in which clients should avoid making cuts?
Looking to the utilities segment, the most important aspect of the business is maintaining reliability. That’s the top priority. The same is true for oil and gas. Beyond that, it’s important to keep the strategic ventures alive. That could be something like continuing to follow an innovative digital path or making new investments in disruptive technologies. For example, artificial intelligence and IoT, as well as the cloud – these are technologies that will help utilities lower the cost base and be more efficient in terms of operations. Again, that requires an investment, but the return is unquestioned.
Which technologies do you think show the most promise for energy companies in managing this landscape?
Our recent research, the World Energy Markets Observatory, confirmed that there is no sector technology breakthrough on the horizon that will revolutionize the energy industry or be a so-called “silver bullet” for climate change issues. With that said, there will certainly be evolution and progress in the form of price point improvements, efficiency improvements, productivity improvements, and so on. Renewables are particularly interesting, in that the continued advancement of sector technology make these sources more competitive in terms of price and forecast-ability. Hydrogen is another interesting area. Right now, the industry is considering the ability to scale and how storage and battery technology could address bigger swaths of demand. Finally, the smart grid is a key sector technology, as powered by the internet of things (IoT) and AI.
As these capabilities become more mature and more effective, energy organizations will benefit from efficiency gains and cost reductions. In fact, another recent piece of research from the Capgemini Research Institute, Intelligent Automation in Energy and Utilities, identified a savings opportunity between $237 billion and $813 billion for energy and utilities organizations that implement intelligent automation at scale.
Please join us next week for part two of our conversation with Randall Cozzens, which will explore how this dual crisis may reshape public sentiment around sustainability and, in turn, accelerate transition efforts. In the meantime, to learn more about the key findings of Capgemini’s research, read The Future of Energy report or download the most recent edition of the World Energy Markets Observatory (WEMO).