Why energy innovation is far from alive and well
Energy companies like to talk about innovation. But is it really happening?
OIL PATCH INNOVATION IS AILING. WHY?
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.