Terra Incognita A Navigation Aid for Energy Leaders

AIChE Management Meeting April, 2007

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The energy world is changing a leadership challenge

1. 2. 3. Global energy complex is entering its third phase change IOCs are losing competitive position in conventional resources Demand trends are not sustainable - China and India rise to materiality requires a Phase Change in the global energy complex Societys ascent of the Maslow hierarchy increases expectations of energy companies security and climate must both be addressed Previous shareholder value propositions are unpersuasive Old strategies are threatened - the phase change demands a different approach to strategy development The industry must revitalize its portfolio and refine its parenting advantage Execution increasingly requires driving down the cost of high cost resources Leadership has never been more important

4.

5. 6. 7. 8. 9.
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It is unlikely that we will revert to the 1990s price trend

Oil Price in 2004 $/Bbl
$120
Conventional Oil, More Difficult Places Synthetic Oil, Carbon Capture

$100
Conventional Oil, Old Places Conventional Oil, New Places

$80
North Sea, Alaska

GTL, CTL, Biofuels

$60
Spindle -top East Texas Middle East N. & W. Africa

$40

$20

$0
1860 1880 1900 1920 1940 1960 1980 2000 2020 2040

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If a problem cannot be solved, enlarge it. Dwight D. Eisenhower

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The Phase Change opens up new business models

Gasification

Crude Oil
Refining Fischer Tropsch

Natural Gas

Coal

Syngas
Combined Cycle

PC

Gasoline & Diesel

ICE Fuel Cell

Hydrogen

CO2
Transmission

Flue Gas
Chemical Separation

Societal Needs

Personal Mobility

Batteries

Commerce, Comfort & Connectivity

Transmission

Emissions Control

Sequestration

Nuclear Waste Transportation

Bio-fuels
Chemical Processing Bio-refining

Engineered Crops
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Wind, Tides, Currents, Waves, Solar

Nuclear

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A Supersize scenario would favour multi-feedstock mega-plants

The New Refinery Extends its Feedstocks into Natural Gas and Solids
Ethylene/Propylene

Ethylene Cracker Complex

C2-C5+ C2-C5+

BTX

Aromatics Complex
H2 raffinate

Aromatics

naphtha

Natural Gas

Bitumen/ Hy Crude

FCC Coking Refinery

Coke

intermediates

Hydrotreating/ cracking Complex

wax

Gasoline Diesel

C1

H2

Gasification Complex
Solids: Coal, Coke, Biomass
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syngas

Liquids Synthesis

Lubes

Power

CO2

EOR/Sequestration

Source: CRA International

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A Hamburger Helper scenario favors distributed manufacturing to supplement traditional refining and chemicals
Bitumen Upgrading Coal-to-Liquids

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The Electric World scenario game-changer would be economic plug-in hybrids

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The game-changing technologies

Coal and gas based synthetic liquids CO2 sequestration Cellulosic ethanol conversion Batteries

Increasingly Disruptive

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New approaches to strategy will be necessary

Far from Agreement

Todays Strategic Challenges

What is Parenting Advantage1 1. Developing insights that provide visibility to trends prior to the competition

Traditional Strategic Challenge

Close to Agreement

Terra Firma

Terra Nova

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Close to Certainty

Far From Certainty

2. Capability to execute more effectively and efficiently than the competition 3. Applying #1 and #2 to the right business opportunities

Asset Portfolio Framework

Performance Assets designed to spin-off cash and maintain stable earnings Growth Assets designed to deliver sustainable growth with reasonable returns Options Long-term investments to create future competitive advantage and growth opportunities, and provide insights on the future

Parenting Advantage
9 Notes: 1. Michael Goold, Andrew Campbell and Marcus Alexander. Corporate Level Strategy Private and Confidential

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Our interviews point to a leadership and learning system

Core Strategic Roles
a. b.

Key Responsibilities
Positioning downwind of major trends Defining corporate boundaries Selecting areas of focus Defining the business models Building out the strategy Securing commitment Accessing opportunities Deploying resources Organizing effectively Addressing stakeholder concerns Conveying purpose Shaping values and culture Defining decision rules Achieving high performance People and demographics

1. Setting Direction

c. d. e. a. b.

2. Executing the Strategy

c. d. e. a. b.

3. Providing Leadership

c. d. e.

See also Systems Thinking Managing Chaos and Complexity: A Platform for Designing Business Architecture p58 by Jamshid Gharajedaghi for a similar leadership model, derived from manufacturing plants
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.. and a Charter for next generation C-level energy leaders

1. Conviction: 2. Commodity: 3. Complexity: 4. Connectivity: 5. Collaboration: 6. Consilience: 7. Coopetition: 8. Communication: 9. Competencies: 10. Character:
Take a longer view and be prepared to make some big bets on unproven concepts. ` Be prepared to face down the doubters who think this is just another investment cycle Expand the companys vision of the portfolio of energy commodities and steps in their value chains in which your company will participate. Build business models and management processes for mega-projects and distributed investments; owned and controlled and proxy operated businesses. Install new physical, information and social networks to move molecules and electrons to where needed and to enable a new, diverse workforce to collaborate. Productive relations with suppliers, technology providers and communities affected by the investments: positive interfaces at numerous nodes of extended enterprises. Base strategy and policy on hard facts, but respect aesthetics and the higher aspirations of humankind. Visualize the new competitive landscape clearly to turn competition into coopetition in big new partnerships and drive down the systemic costs of new resources. Invest in helping a range of constituencies understand the changes under way and the policies that will best facilitate an orderly transition. Create new value by teaching, training and coaching the next generation of leaders the lessons of the past and by focusing on defining the needs of the future. Sustain a strong ethical foundation, while conveying the sense of excitement for a new and better future this will be the test of character for the next generation.

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The winds and waves are always on the side of the ablest navigators. Edward Gibbon, Decline and Fall of the Roman Empire

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Terra Incognita A Navigation Aid for Energy Leaders

Chris Ross CRA International
Available from: Pennwell.com Amazon.com BarnesandNoble.com

1600 Smith Street Houston, TX 77002 (713) 646-2211 cross@crai.com & Lane Sloan

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