The energy sector is characterised by uncertainty. As the range of viable sources of power generation increases, the melting pot of politics, environment, economics, development and innovation becomes all the more intense. This creates a mix of unexpected and rapidly-moving events that can impact businesses and governments alike.
Risk & Reputation
Decision making in the energy sector is not based on predictable outcomes. The landscape is continually shifting and important information emerges from unexpected sources. Whether it’s improving risk management to guarantee the security of operational sites, or reacting to trading signals that will determine financial losses or gains, the pressure to respond faster is greater than ever. Indeed, predictability of energy supply is core to the credibility of global political and business leaders alike - whether that’s as a supplier or consumer.
For years the conversation was focused on traditional fossil fuel or nuclear capabilities - and these forms persist as critical elements in our energy mix. The US has doubled down on its commitment to such forms of energy, and the Middle East has signalled a more optimistic outlook on oil revenue - for now, at least. But alongside these trends sits the challenge of carbon reduction - which frequently butts sharply against both the prevailing geopolitical order and the pragmatic challenges of the shift to ‘green energy’.
With such a fine balance in play, the actions that corporations take - like the nations they supply - receive close scrutiny. Reputation and resilience lie at the very core of the energy sector.
The Evolving Energy Landscape
As popular sentiment moves toward renewables, the market is seemingly reaching an inflection point where global leaders - on a national and corporate level - are starting to make significant commitments to sustainable energy usage.
Nation-states, from Sweden to China, are exploring new paths. Sweden is set to hit its renewable energy targets for 2030 - achieving an increase in annualised renewable energy production of 18 terawatt hours - 12 years early. China has also made progress, hitting its 2020 emissions targets 600 days early - a goal of a 40% reduction in emissions as a unit of gross domestic product. In fact, China is reputed to spend three times what the US does on renewable energy technologies. In a similar vein, Google has confirmed that it purchases more renewable energy than it consumes as a business. Corporations and countries alike are facing enhanced expectations.
But while sustainability is often treated as an easy choice by the general public, the reality is far more complex. There are interdependencies of politics and economics at play that will unfold and evolve over the next several decades. Today coal accounts for almost 40% of electricity generation globally - meaning that while it has fallen out of favour with many, it remains critical for our homes, places of work, hospitals and innovation hubs. And worldwide, we use over 100 million barrels of oil a day, with electric vehicles as yet displacing only around 50,000 barrels. This is a sector where opinions move fast, even when the infrastructure cannot.
Act at the Pace of Now
Clearly, we cannot just ‘flick a switch’ to shift our energy requirements, nor would we want to, given the complexity of the change this would require - everything from the cars in our garages to the negotiations between heads of nations. The multifaceted nature of the energy sector makes it intimately tied to the movements of the world as we know it.
The energy sector has become a tense space. There is unrelenting pressure on individual players - be they suppliers, traders or researchers - to be highly effective in their operational delivery. Market conditions remain challenging within oil and gas, as price recovery optimism is matched by long term supply concerns. There are heightened demands for effective trading, secure operational sites and spotless brand reputations. More than ever before, the industry is having to understand and act at the pace of now.
Companies face similar challenges with renewables. Solar power, for example, has not taken off in some markets. In the UK, a national feed-in tariff policy - which was introduced to encourage domestic use of solar panels - has been phased back out. This has been seen as a signal of market intent, but politicians are divided over the next move. Like the oil and gas sector, players in solar need a comprehensive view of their landscape, giving their strategies full context.
Informed Decision Making
Clearly, there are innumerable ways in which unforeseen events can impact the operations, commercial opportunity and reputation of organisations in the energy sector. With so much information and so many viewpoints, it can be hard to determine what’s relevant.
This melting pot of conflicting interests and diverse directions poses a number of demands on governmental organisations and corporations alike:
- Organisations will need to be razor-sharp in cutting through the noise, so senior decision makers can understand and react to emerging trends faster than in any previous era.
- Commodities traders will need to use a range of sources outside of the established trading platforms, such as social media, to understand high-impact events that could affect commodities prices.
- Those that are most responsive to incidents and market movements will be the ones who capitalise on opportunities and mitigate risk.
- In a digitised world, interruption to sources of power are particularly high profile, with incidents rapidly becoming public and putting enormous pressure on the brand’s reputation.
- As the media itself continues to diversify, reporting on the behaviours of corporations and governments is vastly more visible to both the public and investors. Addressing pre-viral stories, rather than waiting for a crisis to unfold, will become a core skill within corporate communications / public affairs teams.
Change in the energy sector runs at dual speed. Opinions move fast - both amongst consumers and leaders - while the infrastructure of the sector cannot shift so readily. This puts greater responsibility on organisations to manage risk and reputation in real time. Without a comprehensive view of the market, and without the relevant information, this is tough. So there is an opportunity to integrate information discovery across the business, from trading desks to corporate communications professionals and everything in between. In this way, energy companies will be able to make better decisions, faster.