Recent global shifts have underscored how critical it is for companies to focus on resiliency.
Key takeaways
Whether in the oil and gas, power and utilities, or renewable sectors, companies need to adapt.
From the evolving energy mix to the rise of artificial intelligence, we look at the top issues.
The energy sector is somewhat accustomed to volatility and change, and that remains the case today. The ups and downs of oil and gas prices, the impact of the evolving energy mix on the power industry, and the explosion of investment in clean energy are just some of the factors that energy companies must face. The global shifts of the past few years have also highlighted how critical it is for energy companies to focus on resiliency.
Through 2024, companies in the energy sector will need to adapt their operations proactively to thrive in today’s evolving landscape. This applies across the energy ecosystem, whether oil and gas, power and utilities, or renewable/clean energy companies.
Here are the top six trends RSM has identified for the energy sector:
1. Evolving energy mix
As industries across the economy navigate the effects of rapid growth in clean energy technologies, companies in the energy sector need to understand what the ongoing energy transition means for them. In 2023, global energy transition investment—defined as investment in long-term structural change across industries—totaled $1.8 trillion, up 17% from the prior year, according to BloombergNEF. Investment in this category is on the brink of overtaking fossil fuel investment for the first time, and investment in clean energy technologies will continue to grow.
However, oil and gas will continue to see strong demand for decades, and following the shale revolution in the 2010s, the United States is positioned as the global leader in crude oil and natural gas production. Natural gas especially is positioned to be a key energy source for decades to come as a lower-carbon alternative to coal and other petroleum products to fuel increasing power demand.
Decarbonization of energy production is also receiving more attention through clean energy incentives in recent U.S. and Canada legislation, and the use of emissions as a key metric in environmental, social and governance (ESG) reporting. As a result, decarbonization will become a bigger priority for energy companies and a strategic opportunity for business growth.
Companies that have traditionally been oriented around fossil fuels are looking for ways to decarbonize and diversify their business investments into more green energy technologies such as carbon capture and storage, renewable energy, biofuels, and battery storage.
Decarbonization of energy production is receiving more attention through clean energy incentives in recent legislation, and the use of emissions as a key metric in ESG reporting. As a result, decarbonization will become a bigger priority.
Anne Slattery, industrials senior analyst, RSM US LLP
2. Supply chain shifts
Many aspects of the energy supply scramble that started in 2022 continue. While delays and cost increases from the pandemic are easing, a variety of complicated factors continue to affect energy companies. Houthi attacks in the Red Sea have redirected global trade routes by thousands of miles around the Cape of Good Hope, increasing shipping times and costs.
U.S. companies are also paying more attention to reshoring certain production activities. Recent U.S. industrial policy aims to resolve the supply chain weaknesses of the past few years for technologies and resources critical for the energy transition, whether related to critical minerals, electric vehicles or the semiconductors that are a key part of numerous “smart” devices today used across the energy landscape.
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3. Continuing urgency of cybersecurity
Like it or not, companies across the energy value chain are becoming digital companies, and with that comes more opportunities for cybercriminals to compromise businesses. This has contributed to a shifting view on the value of cybersecurity for energy companies; once a cost center that largely focused on reducing risk, mature cybersecurity programs have become a source of competitive advantage.
Energy companies play a key role within critical infrastructure globally, providing the fuel that people, companies and countries depend on—this also makes them the target of nation-state attackers and cyber warfare. As we’ve seen in recent years, successful cyberattacks on critical energy companies can have a crippling effect that spreads quickly.
According to the 2024 RSM US Middle Market Business Index special report on cybersecurity, 28% of middle market executives said their company experienced a data breach in the last year. Thirty percent reported having at least one ransomware attack or demand in the previous 12 months, a small decrease from 35% last year, but a 7% increase from 23% two years ago.
Energy companies—and any third parties they work with—need to raise the bar on protecting themselves in this new world where workers, machines, supply chains and organizations are becoming ever more digitally connected. While energy companies may not have vast troves of personally identifiable information, ransomware attacks can still be costly to operations. Understanding which critical information and processes need protection from potential cyberattacks—and taking action to put those protections in place—will be increasingly important.
4. Digitization and the rise of AI
As the energy sector evolves, it faces new pressures and opportunities, especially from the ongoing energy transition and the digitization of industrial processes. To remain competitive and resilient, energy companies are increasing their adoption of automation in business and operational processes, providing improved efficiency, reliability and safety.
Analytical artificial intelligence (AI) technologies, including machine learning, have come front and center as companies digitize their business with use cases ranging from the back office and cybersecurity to field operations and process optimization. Middle market energy companies can benefit from the lessons learned and investments made by early AI adopters—typically larger energy companies—to chart their own adoption journey. To take full advantage of AI, organizations should understand their existing capabilities, determine how to manage new risks and challenges, and collect and refine the data—something energy companies have historically struggled to do—that will inform AI technologies.
AI also brings challenges and solutions for the industry from an energy-use perspective. Availability of energy to power data centers will put pressure on electric utilities to serve the increased demand on the grid, but AI-enabled hardware and software may also help optimize performance of the grid and other resources supplying and requiring power across the value chain.
Energy companies—and any third parties they work with—need to raise the bar on protecting themselves in this new world where workers, machines, supply chains and organizations are becoming ever more digitally connected.
David Carter, industrials senior analyst, RSM US LLP
5. The battle for talent
As the energy sector grapples with technology’s increasing role, the impact on its workforce will be significant. The dynamic and fast-paced environment created by today’s advanced technologies combined with the digitization trend—from intelligent robotics to big data and the industrial Internet of Things—will require the current workforce to adapt. The way energy sources are evolving as the energy transition continues is requiring employees with new skills to manage newer energy technologies while also supporting existing processes in the coming years through the transition.
We expect a renewed emphasis on cultivating new skills for an environment where analytics increasingly drive business decisions and humans more commonly coexist with robots. Energy companies will need to reassess and update their training and workforce development strategies to keep pace with this industry shift. Companies will also need to have a clear understanding of which core offerings to focus on and which might make sense to outsource.
As the labor market remains tight, companies will need to be more intentional and creative in attracting and retaining talent, especially amid shifting employee values and demographics.
6. Market pressures and policy/regulatory shifts
The U.S. economy is undergoing structural change as the era of inexpensive and widely available capital has come to an end. In its place, companies face a higher cost of capital and tighter access to capital. This is driving energy companies toward consolidation, cash preservation and a more strategic focus on improving enterprise value through margin expansion and additional revenue opportunities.
At the same time, recent U.S. legislation—including the Inflation Reduction Act (IRA) and the CHIPS and Science Act of 2022—has shaped a new era of industrial policy that is driving increased domestic investment, including for green technologies that support the energy transition. Canada is also shaping its policies to attract investments in priority sectors, such as clean technology, the electric vehicle supply chain and critical minerals exploration.
Governments at both federal and provincial levels offer investment tax credits and incentives, funding and grants through various innovation funds and programs, government financing, and targeted support negotiated directly with manufacturers. For example, the IRA introduced a 30% tax credit for a wide range of clean and renewable energy investments ranging from wind and solar to biofuels.
Energy companies need to understand how to take advantage of these opportunities. This will be especially important as businesses navigate challenges around capital cost and availability, increased scrutiny around carbon emissions and other ESG issues, evolving qualifications for clean/renewable energy credits, and power grid strain from electrification and AI growth.
RSM contributors
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