How electric utilities can respond to the growth of legal cannabis.
By Joshua Belcher
As the legalization of cannabis continues to expand in the United States, smart utilities are actively taking steps to engage these unique users and help them to develop strategies to manage their current and future energy consumption. Why? Because the cannabis industry, especially indoor grow operations, is a voracious consumer of electricity with potentially significant impacts on grid infrastructure.
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The petrochemical industry must learn painful but necessary lessons
from Hurricane Harvey’s impact on the supply chain.
By Yves Thill, Vijay Kasi, Vincenzo Sposato and Brandon Kennedy
When Hurricane Harvey made landfall on the Gulf Coast of Texas in August, the damage predictions were dire. But the relentless, unprecedented rainfall that caused such massive flooding and destruction caught even the pessimistic off guard.
The impact of Harvey on the region’s petrochemical industry has been substantial, causing ripple effects across the entire supply chain. The vast majority (90 percent) of Texas ethylene capacity and more than 60 percent of all U.S. capacity came to a halt, and around 20 percent (more than 3.5 million barrels a day) of U.S. refining capacity was shuttered for nearly two weeks.
The port of Houston, the second-busiest port in the United States, was closed for more than a week, and a rail embargo of the Gulf Coast was in effect for two weeks. To make matters worse, key supplier plants were flooded due to an unexpected levee failure outside Houston.
Harvey’s aftermath brings into sharp relief the importance of the Gulf Coast region to the entire petrochemical supply chain. Specifically, it makes up:
* 80 percent of North American ethylene capacity and 20 percent of global capacity;
* 67 percent of North American propylene capacity and 13 percent of global capacity; and
* 80 percent of North American styrene capacity and 15 percent of global capacity.
Virtually all petrochemical suppliers in the Gulf Coast were offline for at least a few weeks and some will be offline for months. When such a significant portion of North American capacity goes offline for this much time, the effects will be felt across numerous industries for months to come. Demand does not slow down because of any natural disaster and, in certain cases, it can even increase. This is the case for packaged food and water, cleaning supplies and temporary shelter.
Even for those able to restart relatively quickly, there was almost a month’s worth of pent-up demand they needed to contend with – on an infrastructure network that had sustained considerable damage, including washed-out bridges, damaged rail lines and limited truck access. This will continue to impact petrochemical suppliers, their customers and the economy at large for some time.
Petrochemical spot pricing immediately peaked, and this will continue to be felt as customers try to manage their demand against the volume allocations they have received from their suppliers. This puts petrochemical producers at risk, as many customers were forced to turn to their suppliers’ competitors to fill the gap.
Lessons from the Past
The world has seen its share of natural disasters in recent years, from a succession of powerful hurricanes, to earthquakes that give rise to massive destruction and deadly tsunamis, to volcanic eruptions that spew ash and disrupt global flight patterns. These natural catastrophes not only result in an enormous amount of damage locally, they also can cause today’s lean supply chains to come to a screeching halt, especially when back-up plans are limited.
About 1.2 million Americans currently live in areas at risk of “substantial damage” from hurricanes, according to the Congressional Budget Office – a number that is expected to increase nearly tenfold by 2075. This means that the disruptions caused by Harvey will not likely decrease moving forward, and it is crucial that we begin to fundamentally shift how we manage supply chains in this new reality. To do so, we need to look at the lessons learned from each natural disaster so we can be better positioned for the future.
Anticipate disruptions. If we could accurately forecast all disruptions, few of us would be in our current line of work. However, as supply chains get longer and increasingly global, the probability of facing some level of disruption becomes much higher. Where once contingency planning was a “nice to have,” today it is an ongoing necessity. Suppliers to and customers of the petrochemical industry need to work together to manage the impacts of significant natural disasters. That includes creating detailed disaster recovery plans, prequalifying alternate suppliers across the entire supply chain and conducting scenario planning to identify potential weaknesses in the supply chain.
Enable information flow within supply chains. When disaster strikes, companies need to be able to communicate rapidly both up and down the supply chain. No one can prevent a hurricane from striking, but ensuring suppliers and customers are well informed of the latest developments has proven to be a true competitive advantage. The information we take for granted might prove to be vital to a supply partner’s operations.
Build a risk management culture within the organization. An assessment of each supplier’s risk profile needs to be embedded in the vetting process. Companies also need to qualify alternative suppliers for crucial products and qualify alternative products when products are limited by geography. While this may come at a short-term premium, it effectively serves as a relatively low-cost insurance policy in a worst-case scenario.
Build the value stream map of the entire supply chain. Creating a detailed map of the entire supply chain will enable greater understanding of each individual link, including the supply sources and geographies. Who depends on what, and from whom? This seemingly banal exercise has proven to be essential for accurate scenario planning, which ultimately becomes mission-critical when dealing with a major disruption caused by a natural disaster.
Take advantage of software and tools to perform ongoing risk assessment. Simulation, alert, and disaster recovery software will enable teams to analyze and evaluate different scenarios. Harnessing big data inputs can help determine the likelihood of specific events.
Planning for the Future
Harvey may not have been the worst hurricane in terms of the Saffir-Simpson scale, but it has exposed the fragility of the petrochemical supply chain. Companies that treat the outcome as a unique opportunity to learn and offer competitive advantage will be in a strong position to mitigate the results of future disasters.
Yves Thill, partner; Vijay Kasi, vice president; Vincenzo Sposato, manager; and Brandon Kennedy, senior analyst, are with A.T. Kearney.
Broaden your vision: A talent perspective on how mining and energy boards
can prepare for industry disruption.
By Jorge Gouveia de Oliveira
The natural resources sector – largely comprised of mining and oil and gas companies – is cyclical in nature. Companies operating in this sector have experienced both peaks and troughs over the past few years. Part of the price volatility has been driven by demand from China. In the medium to long term, in addition to regional volatility, some permanently disruptive forces will shape the future of the natural resources sector.
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Hire for fresh thinking and tech expertise to solve issues, innovate and grow.
By Kevin Schroeder
Energy companies that survived the downturn and are now operating in the “new normal” have the opportunity not only to recover, but to renew. They can reinvigorate their business, positioning it for new growth and profitability in a lower-price environment. And the timing couldn’t be more important: Success depends on being future-focused and technology-powered.
Companies that are rebuilding their workforce post-downturn have the opportunity to draw upon a generation with analytical and tech skills and fresh ideas.
From Challenges to Advantages
The period of financial doldrums took its toll. Updating legacy tech systems, hiring and conducting activity beyond the status quo were put on hold. Experimentation had to be set aside, and skill gaps widened. Companies fell behind in strength and growth. They now operate in a time where decisions are made faster than ever, finding this problematic when information isn’t at hand and the tried-and-true has become tired and ineffective. The pace of business has radically accelerated, and the current environment does not have patience for companies that coast at a traditional speed and make conventional decisions.
In the realm of technology, energy leaders are slowed in decision-making when their workforce isn’t qualified to collect and interpret data and put it to meaningful use. Robust measuring, monitoring and data analysis are required in business today. In the 2017 Grant Thornton LLP-Hart Energy survey of C-suite and senior executives, 61 percent of respondents said their biggest tech challenge is access to the right information. Primary obstacles, said 42 percent, are dated tech and lack of systems integration and compatibility.
One area appears to have escaped notice: Rigorous cybersecurity is a priority for only 6 percent of respondents. This is likely because the industry hasn’t yet been a major target – and because some do not recognize the threats. But attacks will come, probably beginning with field operations. A company will be vulnerable if it has an antiquated system and unprepared employees.
Adoption of enabling technology is critical throughout the business, but nowhere more than in the field. Most of the oil industry is technologically outfitted for exploration and development. But other needs, such as real-time data on well performance, don’t get this attention. In our survey, respondents identified play/basin analytics as a big miss in effectively running the business. Failing to technologically monitor equipment weaknesses is to blame for significant lost time.
After checking out a well, field managers must go gather tools and equipment and then return. Throughout the enterprise, efficiency is either gained or lost, depending on the availability of tech. There is a direct connection from efficiency/inefficiency to profit/cost in productivity, such as in the correlation between improved drilling efficiencies and well performance and higher margins.
Playing tech catch-up is just part of a winning strategy; the name of the game is innovation. Companies innovating in every possible area of their business will be the ones reaching gold. They must also pursue different strategic business decisions and embrace culture change.
Change Agents
For business to move forward in today’s environment, attracting and retaining new talent is critical. In recouping employee numbers lost in the downturn, companies will need to turn to a younger generation. That turnover has started. The industry as a whole is undergoing a major “crew change” of baby boomer retirement. The transfer of knowledge from experienced workers to new hires is useful in many ways, but real value lies in a reset.
A combination of tech expertise and fresh thinking revitalizes companies that were forced to hunker down in the financial storm. They are investing in tech and talent to cut inefficiency and related costs and rebuild reserves. The payoff of attracting and retaining the right people is thriving in this lower-for-longer commodity price environment.
The natural choice in the talent pool is the millennial generation. Millennials make up about 34 percent of the U.S workforce, according to Pew Research Center, and the percentage will grow. Their tech expertise is undisputed, their youth lends itself to enthusiasm and curiosity, and they constantly hone their collaboration skills through their desire to connect with others. Candidate selection should be based on both hard and soft skills – the ability and the vision to apply technology to challenges.
A reoriented staff won’t be IT specialists exclusively. Instead, every new employee will be respectful of the power of technology to get his or her job done, familiar with at least base-level functions and eager to learn more.
Next-Gen Workers
Converting sought-after candidates to employees requires aggressive recruitment activities on three fronts. These involve demonstrating the career opportunities in an exciting and expanding industry, positive changes in key areas and a company culture that mirrors employee values:
- Demonstrating opportunities. Candidates must be assured of an engaging and profitable career in energy and an attractive work setting. Besides competitive advancement, training, salary, benefits and flexible scheduling, a company is wise to upgrade facilities to include quality amenities such as fitness and socializing centers, dining and daycare. A tech-building plan is a must.
- Matching culture to millennial values. If a company’s value proposition doesn’t already contain elements important to millennials – learning, team building, openness to innovation, fair compensation, work-life balance and a service mission – it should seriously consider adopting them. The company can then boldly prove its adherence to a culture worthy of appreciation and loyalty.
- Showing positive change. The energy sector has suffered from unfavorable perceptions. While an individual company can’t engineer a reversal, it can speak to the social interests of millennial workers by identifying activities that address health, safety and environmental issues and commitment to reliably meeting vital energy needs.
A company with a tech-savvy and idea-generating staff in place is well positioned and empowered to surge in operational efficiency, growth and competitiveness.
Kevin Schroeder is the energy industry managing partner for Grant Thornton LLP.
Create a "virtuous circle" by building an effective and diverse mining board.
By Jon Martin and Joe Saliba
In our previous Energy & Mining International column, we referred to our study examining the evolution of the mining board between 2011 and 2016. This time, we discuss what differentiates effective boards and how to increase board diversity in the mining industry.
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New survey results suggest the exploration and production industry is turning a corner.
By Kevin Schroeder
With the worst of the industry downturn behind them, E&P operators are turning attention to new opportunities in these more favorable economic – and regulatory – times. The industry is getting used to the “new normal,” with crude trading around $45 to $55 per barrel during 2017, and many companies are reinventing themselves to be profitable at this level.
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How oil and gas operators can increase jobs and profits in the robotics age.
By Brent Potts
The Iron Roughneck, a hydraulic machine made by National Oilwell Varco, has almost completely automated one of the most dangerous oil processes on the rig floor. In the past, divers used tongs to manually connect and disconnect segments of pipe deep beneath the ocean’s surface. Today, iron roughnecks perform the same function but are operated remotely. While this automated solution increases both safety and efficiency on the rigs, it also removes the need for drillers.
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The emergence of strong national companies with ambitions for international growth
has made China the top country of origin for chemical deals.
By Guttorm Aase
After robust yet modest chemicals mergers and acquisitions activity around the world in 2016, expectations for this year are high. The global pipeline is at an all-time high, with more than $300 billion of potential transactions – more than twice the value of the pipeline at the end of 2015, which itself was an all-time high, and more than the deal activity of 2014, 2015 and 2016 combined.
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