By Jonathan Woetzel & Scott Nyquist
Historically, the resources sector followed a dig-and-deliver model, where success was mainly about the size and quality of assets. For example, the oil industry depended on having the most plentiful reserves. But that’s no longer the case. Today, how producers manage their resources is far more important than how much they have.
Technology is the new oil, and it’s changing the game for producers of major commodities, such as oil, coal, iron ore, natural gas and copper. Robotics, data analytics and the “Internet of things” are transforming how resources are consumed. Technology is enabling people to use energy more efficiently in their homes, offices and factories. The transportation industry remains the largest single user of oil, but consumption is declining as engines become more fuel efficient and autonomous, and electric vehicles take the road.
As a result, demand for resources is flattening out. (Copper, often used in consumer electronics, is the exception.) Peak demand for major commodities, like oil, thermal coal and iron ore is in sight and may occur as soon as 2020 for coal and 2025 for oil. At the same time, renewable energies, including solar and wind will play a much larger role in the global economy.
Of course, a low-growth economic environment creates plenty of challenges for energy producers. But that’s where technology comes in. Recent expansions in the copper industry, for example, are tapping reserves with an average ore grade of less than 1 percent copper, a sign of how technology can get more out of less. In oil and gas, the most recent deep-water explorations are accessing reservoirs at depths of more than 3,000 meters, six times deeper than during the 1980s. And technology is making the workplace safer. Statoil has developed an underwater robotics system for pipeline repairs. Drones rather than people can conduct pipeline inspections and real-time site surveys in oil field development.
Jonathan Woetzel is a director at the McKinsey Global Institute. Scott Nyquist is a senior partner in McKinsey’s global energy and materials practice.