In 2017 Royal Dutch Shell (Shell) announced it was exiting the controversial oil sands sector in Canada and was focussing on becoming an energy company. As Fortune reports, the company wasn’t making a rash decision, it had invested expertise and research into understanding the disruptions to energy production and usage. According to Fortune, Shell realised the disruption was arriving sooner than many in the oil sector predicted. Since March 2017 the company has been expanding its portfolio and diversifying its business.
Craig Walker is CIO for the Downstream business of Shell and tells the Horizon CIO podcast about the transformation of the Anglo-Dutch firm, how technology is core to that transformation and how he is changing how IT operates in order to enable Shell to become an energy firm.
“My glib answer is anything that is not the upstream,” Walker jokes of the difference between the Upstream and Downstream parts of the business. “The Upstream part of the company looks for the oil and gets the oil out of the ground and then they hand it over. Downstream starts with trading and supply, manufacturing and includes all our refineries, our petro-chemical plants and on into our B2B businesses such as aviation, bitumen, lubricants, marine and then onto the retail sites that the general public are aware of,” he says of the two sides. Downstream is the larger business, but also has the narrowest margins.
“As a trading company we are the biggest by someway with 27 major refineries around the world and a similar number of petro-chemical and lubricants plants.
“Every 12 seconds somewhere in the world we finish fuelling an aircraft, it is a phenomenally large company and you don’t get the scale of it until you come into it,” Walker says. During a long career with Shell he has worked in both downstream and upstream sectors.
In moving to become an energy firm Shell is responding to recent and rapid changes in the energy market. Sustainable energy from wind and solar has become economically viable and is growing at unforeseen rates. Wind energy powers over 20% of the UK’s electricity needs on an almost daily basis and the price of solar panels is dropping rapidly, which in turn is being boosted by developments of batteries for buildings from the likes of Telsa. Electric car sales are also on the rise, as is the adoption of ride hailing and car club usage. All of which is disrupting the Shell business model.
“I live in central London, outside the apartment block I live at, there are two Zipcars, it costs £8 to belong as a member and £5 an hour to rent, and there is a fuel card in there that says please as a curtesy to the next person don’t bring it back with less than a quarter of a tank in it. Where is Shell in all of that?” Walker is acutely aware of how businesses like Zipcar have the potential to cause disintermediation of the oil sector.
“If I didn’t work for Shell, do I care if I put in the fuel that makes it perform best? Costs the least? It is not my car and it is not my money and I don’t care. So I am going to go to the place that is most convenient. So how do I take all this technology and commercialise it in a way that you still want to come to me? The same problem exists with rotating equipment, if you run a factory and you have a bunch of gas turbines and you are buying lubricant from Shell and then the firm you buy those pieces of kit from offers the classic pay by the hour model, I get pushed out and become a commodity. So the threat is not just the automotive industry it is the threat of the Internet of Things,” he says of how IT is central to Shell responding to new models.
“As we came into the early 2000s we got obsessed with volume and we lost site of the thing that was starting to happen, that the customer’s desires were changing. Thankfully around 2008/2009 we had a substantial change in the leadership team and we became very customer focused,” Walker candidly admits.
“As we globalised, we lost site of the customer and became obsessed with standards and ‘how do we run this as efficiently as we can?’ Of course the pendulum starts to swing back when you realise you have lost something of your heritage, which is being known as a member of the community and somebody special rather than just being an oil company,” he tells the podcast.
“When I joined the company we were very much an oil company. We had six rivals, the so called seven sisters, now the world has changed and it is an incredibly exciting time to be in Shell,” he says of being part of the transformation.
“We have stated that our purpose is that: ‘we power progress together by providing more and cleaner energy solutions’; and I think those words are very interesting. Its about having to do this together. Back in those days you went alone, now you know that whatever you do it is with an ecosystem of players, be that NGOs, government, the public and energy firms.”
“What is interesting now, is that the technology has reached a tipping point; with solar panels and wind. It was all there in the past, but it wasn’t becoming mainstream fast enough.
“As an oil or energy company you can only go where the public want to go. If people want to buy petrol you have sell petrol. It doesn’t matter how many hydrogen points or electrical charging posts you put down, if there isn’t the customer to come to it, but we believe right now, with the experience we have to generate, store and deliver energy to the customer now is the right time to step in and be part of a greener more sustainable energy solution.”
Cynics might believe an oil company is bound to say this as an exercise in PR, but as Walker points out, businesses like Shell have made the investment in the infrastructure and the skills that will be necessary for sustainable energy proliferation.
“I don’t think anyone can go it alone. Governments can create the right policy and regulation to encourage both companies and people to go in the right direction, but we need to be a leader in that. We won’t be in business in 20 or 40 years time if we don’t become an energy company,” he says.
What ever energy Shell ships in the years to come the business has to become as service oriented as ba...
