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We help our clients to design and successfully implement growth strategies, to increase productivity, and to strengthen regulatory frameworks. We do this by deploying our expertise on strategy, operating model review, performance and margin cost improvements, privatization and public–private partnerships, regulatory frameworks, due diligence, research and development, shared services, and many other complex issues confronting businesses.
The oil and gas sector in the Middle East is led by the national oil companies (NOCs) that sit at the heart of the region’s economy, and are leading contributors to state revenues. NOCs operate across the entire value chain — upstream, midstream, and downstream — and these days are frequently asked to take on social obligations in the form of non-core activities. At the same time, NOCs are faced with increasing challenges exacerbated by a changing oil price environment: capacity expansions, management of the cost per barrel, monetization of non-associated and technically challenging gas reserves, improvements to oil products quality, win-win engagements with the international oil companies (IOCs) and the private sector, step changes in local content obligations, relevant research and development, and a shortage of capabilities. As their contribution is expected to remain critical, NOCs will need to ensure they operate their core businesses effectively while developing new avenues of growth to manage their portfolio risk. One of the levers, to address these imperatives, is the use of digital technologies. Although the industry players are known to be at the beginning of their digital transformation towards an envisioned digital oil fields, various technologies are being adopted by major producers and suppliers. To name a few, field data management, operational analytics, asset optimization technologies, and operations automations, all have shown measurable cost reduction through improved productivity, transformation of business processes and improving health and safety.
After two decades of staggering growth built on low-cost feedstock, the chemicals industry in the Middle East is witnessing decreasing global competitiveness. This is due to the expanding supply base on the back of shale gas, the improved competitiveness of naphtha crackers thanks to the lower price of oil, and the gas price subsidy reduction in the Middle East. Furthermore, the plateauing conventional gas supply in Middle East countries is limiting the potential for gas-based petrochemical growth. Middle East players are therefore finding new growth avenues in liquid-based petrochemicals leveraging refinery integration, and in foreign markets. They are also launching initiatives to improve their internal operations and build advanced capabilities (e.g. integrated site management, data analytics for predictive maintenance, AR for workforce training, mobility, marketing and distribution, etc.) to succeed in this changing environment.
Across the region, power and water services have been largely subsidized and controlled by the state or by government-owned national utilities. With the drop in oil prices and a continuous rise in demand for water and power — albeit at a lower level than before — subsidies are becoming increasingly unsustainable, leaving the door open for strong transformational forces: more private-sector participation, a shift towards direct social support, diversification of the fuel mix and the development of renewable resources, a recognition of how critical conservation is, and the adoption of new technologies. District cooling, which is considered a utility service, is expected to gain traction with the adoption of efficient regulatory frameworks. The sourcing of electrical equipment and services from within the local economy will play an increasingly important role, reflecting a recognition that the hundreds of billions of dollars that governments in the region will spend on critical power and water infrastructure could potentially fuel economic growth, create jobs, and support broader national strategies. Lastly, the boundaries between utilities and non-utilities are becoming blurry, and very soon the future of energy supply and adjacent smart grid and digital services would become a survival of the fittest story.
Middle East countries such as Saudi Arabia, the United Arab Emirates, and Qatar have historically focused on upstream and midstream process industries, mainly in steel and aluminum, leveraging advantageous energy costs. However, in recent years, government-led industrial diversification programs are engendering more downstream integration while boosting other industrial sectors (such as equipment manufacturing, aerospace, and defense), and ensuring positive socioeconomic impact. The development strategies for these sectors are introducing customized enablers to the industrial ecosystems, facilitating growth throughout the different segments of the value chain. Furthermore, the restructuring of existing struggling assets (e.g., through consolidation) plays an important role in the healthy development of these sectors.
Strategy& plays an active role in helping energy, chemicals and utilities clients in the Middle East set their long term strategies and tackle their most pressing challenges. We bring our clients an unparalleled understanding of the global and regional markets, thanks to a diverse team combining strategic experience, industry expertise, and knowledge of local specificities.
Our approach focuses on turning strategy into action and ensuring that our recommendations maximize value for our clients. Strategy&’s energy, chemicals and utilities practice provides consulting services for the following industries:
“Strategy&’s energy, chemicals and utilities practice has served almost every country in the Middle East.”
After political turmoil had left its national energy infrastructure damaged or neglected, the government of a resource-rich Middle East country needed an integrated energy strategy that would optimize the linkages between upstream, midstream, and downstream oil and gas, power, and energy-intensive industries and provide the institutional and regulatory structures to enable the execution of the strategy. The client also wanted to understand the implications of the energy strategy on the socioeconomic and environmental conditions and ultimately, to crystallize a vision for the overall sector.
Following an extensive baseline of the domestic value chain, the team outlined a series of strategic pathways for the energy sector, covering crude commercialization, long-term refining, natural gas supply allocation and commercialization, the long-term energy-intensive industry, and power generation and fuel mix. Following that, an integrated national energy model was developed to evaluate and assess the implications of each strategic pathway on energy security, government value maximization, economic diversification, employment generation, and environmental sustenance. Accordingly, the optimum strategy was selected and detailed with the enabling of an institutional and regulatory setup for the subsectors, and the team detailed the implementation road map for the short, medium, and long term. Strategy& helped the country make sense of its vast, but damaged, oil and gas sector and the strategy required to lead it back to sustained growth.
When a joint venture refinery started experiencing significant financial losses, management called on Strategy& to help determine the cause, and advise on a margin improvement plan.
The Strategy& team first created a baseline of the refinery’s units, processes, product flows, and production. In parallel, they reviewed historical financial statements and worked closely with management and the refinery’s optimization unit to diagnose the decision making process related to feedstock sourcing, refinery utilization, products’ mix, and constraints put in place. They then designed a customized margin-tracking tool, and ran it on historical data to identify the sources of margin leakages. Accordingly, the team has put forward a margin improvement plan that is centered on a revised market optimization algorithm, a dynamic decision making process, and more capable decision support team.
Strategy& was able to pinpoint the areas responsible for margin leakage and assist management in taking the operational decisions to turn around the situation.
A large GCC petrochemical company was struggling to identify and pursue growth opportunities, both close to home and further afield in the MENA region. Strategy& was asked to design a strategy and a governance model for the client’s M&A processes, and to find attractive greenfield and M&A candidates suitable to the client’s aspirations.
To develop the growth strategy, M&A approach, and governance model, the Strategy& team first defined and helped establish the requisite capabilities: process, governance, tools, systems, and talent. The team then generated a list of M&A targets and greenfield opportunities that aligned with the growth strategy and evaluated the most promising, ascertaining the synergies. The client approved the top 10 “build” and “buy” targets and gave the team the green light to design deal structures, engage in discussions and negotiations with each selected partner, and conduct due diligence on the targets.
A GCC country’s ministry of energy set the ambitious goal of deploying diverse renewable technologies over the next decade. Strategy& was drafted to help in auctioning the ambitions and to support in realizing them. The team began with articulating the program’s vision, defining the optimal renewable technology mix and capacity deployment plan, setting up the tendering policy framework, and establishing a centralized capacity procurement entity.
For the launch of the program itself, the team took care of obtaining approvals, supported the efforts to socialize it, and within nine months instigated an initial tendering round to procure renewable capacity. The result was that bids were among the lowest internationally for renewables projects. Strategy& also designed and implemented a series of programs to ensure that the renewables strategy built local content and capabilities across the value chain in a manner that is competitive with comparable foreign suppliers.
Strategy& was retained by one of the world’s largest national oil companies to help identify performance improvement opportunities across the spectrum of upstream operations.
The Strategy& team conducted an in-depth review of exploration, well delivery, reservoir management, major projects, procurement, and human resource processes, with reference to industry-leading practices, and identified the root causes for performance shortfalls. The team developed charters and improvement plans for individual functions, and introduced major cross-cutting initiatives to strengthen the culture of collaboration in the company. Leadership alignment sessions led by the team brought unity of vision on the areas to be improved and consensus on the road map.
Strategy& was retained by a leading international downstream subsidiary of a major Middle East national oil company to validate the existing long-term strategic plan, with key strategic directions cascaded to the different operating units, supported by concrete road maps for the operating units to pursue.
The Strategy& team conducted a rapid validation of the countries and plays identified in the long-term plan on agreed macro and market dimensions. The team identified business opportunity "themes" (countries/regions), and created a list of potential opportunities across the validated countries/plays. They then prioritized the opportunities and defined entry options (JVs, M&A, or organic), which included not only key implications for the company’s operating model, capabilities, and resources, but also the risks. Finally, the team facilitated leadership alignment and approval on the implementation road map to ensure key stakeholders in the client organization have clarity and a unified vision on the way forward.
National oil companies are starting to realize that the energy transition, especially when it comes to blue and green hydrogen, is complementary to their businesses, not a hindrance.
Watch this Gulf Intelligence interview with Ramzi Hage, Principal at Strategy& in the Middle East, where he discusses his outlook on renewable energy in the GCC.
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