Why en­ergy in­no­va­tion is far from alive and well


En­ergy com­pa­nies like to talk about in­no­va­tion. But is it re­ally hap­pen­ing?


In gen­eral, oil com­pa­nies are not ready for the chang­ing en­ergy world. Oil con­sump­tion has been a great ride over the last 150 or so years. Now, how­ever, we need to vi­su­al­ize fos­sil fuel con­sump­tion as the “car­bon bridge” to sus­tain us while we pro­gres­sively in­te­grate emerg­ing com­bi­na­tions of post-car­bon en­ergy sys­tems into the en­ergy mix. All bridges have an end.

Nei­ther is oil pro­duc­tion sus­tain­able, ac­cord­ing to the triple bot­tom line of so­cial ben­e­fit, busi­ness value, and en­vi­ron­ment health. For ex­am­ple, the so­ci­etal ben­e­fit re­quire­ment is ac­tu­ally be­ing met by pro­duc­ing oil-based fu­els for sale, al­low­ing peo­ple and goods to move glob­ally at an af­ford­able cost. How­ever, so­cial li­cense to op­er­ate, which is usu­ally an out­come of so­cial ben­e­fit, is not forth­com­ing, largely be­cause of the po­lar­iz­ing and over­sim­pli­fied rhetoric tar­get­ing oil com­pa­nies which ne­glects to fo­cus on the role that con­sumers play. Peo­ple do not un­der­stand what has to hap­pen be­fore they can gas up a car or turn on a com­puter. Abun­dant and rea­son­ably priced en­ergy is taken for granted.

For the oil busi­ness to be­come ready for the fu­ture, the well-to-wheels costs need to come down at a time when in­creas­ingly mature basins re­quire us to drill deeper and deeper for less re­sources, drill in more ex­treme en­vi­ron­ments and frack tight reser­voirs. I know this sounds im­pos­si­ble. How­ever, what if it was not? That would mean a huge change in the oil in­dus­try’s abil­ity to achieve game-chang­ing in­no­va­tions by mak­ing a com­mit­ment to in­no­va­tion be­yond in­cre­men­tal im­prove­ments. Cur­rently, oil com­pa­nies have prac­tices and pro­cesses that pro­mote in­no­va­tion, but also many oth­ers that dis­cour­age or even sab­o­tage in­no­va­tion al­to­gether.

Look­ing through a con­trar­ian lens, a down­turn is the per­fect time to de­vote com­pany re­sources to in­no­va­tion. Why? Be­cause staff have less “cen­ter of the desk” ac­tiv­i­ties to do, mak­ing more room for “edge of the desk” things like in­no­va­tion. Look­ing through a more prag­matic lens, we see four fac­tors that work against in­no­va­tion dur­ing a down­turn. First, scarce cor­po­rate cap­i­tal is used to pre­serve pro­duc­tion rev­enues and staff, so in­no­va­tion projects are de­ferred in­def­i­nitely. Sec­ond, cor­po­rate in­no­va­tion champions are a rare breed and are eas­ily tar­geted for lay­offs in a down­turn. Third, staff have been trau­ma­tized by re­peated cy­cles of lay­offs and do not want to risk stick­ing their heads up to en­gage in an in­no­va­tive project, even if there is no fi­nan­cial com­mit­ment, be­cause in­no­va­tion is risky by def­i­ni­tion, and any fail­ure is seen as putting one’s livelihood at risk. Fi­nally, both cor­po­rate and ven­ture cap­i­tal in­vest­ment have dried up for early R&D star­tups and SMEs to have the match­ing funds needed to take ad­van­tage of gov­ern­men­tal pro­grams.

Even be­fore the down­turn, the oil in­dus­try earned a fail­ing grade on in­no­va­tion, hav­ing one of the slow­est tech­no­log­i­cal adop­tion rates of any mod­ern in­dus­try. Many rea­sons for this re­late to pre-ex­ist­ing im­ped­i­ments to in­no­va­tion in­clud­ing the in­er­tia of the sta­tus quo, a re­fusal to take even tiny pro­duc­tion risks for the sake of in­no­va­tion, and keep­ing data hid­den from the best out­side thinkers. To fix this, the in­dus­try needs to em­brace fail­ure—be­cause if you’re not fail­ing, you’re not try­ing any­thing new—and be trans­par­ent with com­pany data, which would fos­ter new ideas from out­side in­di­vid­u­als and or­ga­ni­za­tions. On a prac­ti­cal note, com­pa­nies could also sup­ply sam­ples to in­no­va­tors to work with, and then be will­ing to take the sam­ples back for proper dis­posal at no charge, and trans­fer engi­neers from their re­spec­tive si­los into the in­no­va­tion depart­ment for a few months to fos­ter broader think­ing through­out the com­pany.

The oil patch and the gov­ern­ment have as­sem­bled some re­ally good or­ga­ni­za­tions to fos­ter in­no­va­tion in the Cana­dian oil and gas sec­tor. But it’s not nearly enough and it’s not hap­pen­ing nearly fast enough. Cor­po­rate cul­ture must evolve. Game-chang­ing new tech­nolo­gies are re­quired to re­duce costs, en­ergy in­ten­sity and en­vi­ron­men­tal foot­prints on our “car­bon bridge,” lead­ing to post-car­bon en­ergy sys­tems and true en­ergy com­pa­nies. En­ergy tran­si­tion to post-car­bon forms is in­evitable. We are at the be­gin­ning of that en­ergy tran­si­tion now and it’s time to em­brace more rad­i­cal in­no­va­tion and step into the fu­ture with both feet.

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