Digital transformation necessary for Second Wave of U.S. capital projects
Despite the uncertainties surrounding trade and world energy markets, analysts continue to express optimism for the future of the U.S. petrochemical industry and The Second Wave, but caution that the industry must transform how it develops major capital projects.
The U.S.’ ability to meet the world’s demand for energy and chemicals relies heavily on the industry’s ability to make transformational changes – not incremental ones – to capture value and grow profitably, said Decie Autin, Vice President Project Management at ExxonMobil.
“The industry must transform how it develops and executes major capital projects,” Autin said.
Autin delivered a presentation on transformation in the energy industry at the Downstream 2018 conference and exhibition in Galveston, Texas.
Even as ExxonMobil commissions a new cracker in Texas this month, another 8 billion pounds of new capacity is still planned to come online during the remaining months of 2018.
Growth in ethylene capacity has broken all historical records in recent years, with multiple world-scale crackers constructed in the U.S. Gulf Coast.
Formosa, Sasol and Shintech each have new units planned to be complete and operational before the end of this year. Indorama expects to restart a unit originally built in the 1980s by the end of the year.
Nearly 12 million tonnes of ethylene capacity will enter the U.S. market before the end of 2021.
Derivative units, Methanol plants and LNG export facilities also top the list of major capital projects for The Second Wave.
From changing regulatory issues, supply chain challenges, and rapid technology improvements, to a developing trade war and its impact on feedstocks and derivatives, petrochemical companies are bombarded with change.
In such a dynamic environment, the need to master not just efficient delivery of capital projects but make the right decisions about what project to build and when, and how has never been more important.
“Going forward, our companies must seek to disrupt the way we work …we must be on the lookout for opportunities to transform our approach and create new models that allow us to achieve maximum profitability and sustainability in a changing world (e.g., digital),” Autin said.
The term disruption has been used a lot more often in the petrochemical industry recently.
“Digital disruption is an effect that changes the fundamental expectations and behaviors in a culture, market, industry or process that is caused by, or expressed through, digital capabilities, channels or assets”, according to the Gartner IT Glossary .
In the downstream industry, companies see evidence of that disruption, as technology enables greater efficiency, speed and innovation in everything from construction and manufacturing to the supply chain and marketing.
As organizations continue to embrace digital transformation, they are finding that it is not as simple as buying the latest technology. Instead, it requires big changes to culture and systems.
“The reality is that digital business demands different skills, working practices, organizational models and even cultures,” according to a Gartner report published June 20, 2018 titled: Six Barriers to Becoming a Digital Business, and What You Can Do About Them.
In addition, the report notes, "To change an organization designed for a structured, ordered, process-oriented world to one designed for ecosystems, adaptation, learning and experimentation is hard. Some organizations will navigate that change, and others that can't change will become outdated and be replaced."
Digital innovation can be successful only in a culture of collaboration, the executives explained.
“We must drive innovation within our organizations, we must demand exceptional project execution, we must provide transformational leadership and we must challenge ourselves and our peers to develop and nurture a “one-team” collaborative culture,” Autin said.
“Success with digital innovation requires a culture of collaboration that encourages people to work across boundaries and explore new ideas. Many organizations are stuck in a culture of silos and hierarchies that resist change," according to Gartner.
The Gartner report continues, “Culture is organizational 'dark matter' — you can't see it, but its effects are obvious. The challenge is that many organizations have evolved with a clear hierarchy. This groups people clearly and creates boundaries between areas of responsibility.”
“Processes and governance then attempt to define how these groups work together, with work handed over between groups… But digital innovation requires highly collaborative cross-functional teams, and outcomes are uncertain, so these teams need to be adaptive and creative," according to Gartner.
Companies must change their risk tolerance as they can never achieve breakthroughs if employees are fearful of failure, or resistant to trying something new, Autin said.
“Improving our work environments to encourage and support those who challenge the status quo or who identify opportunities for change is a major step in the right direction,” Autin said.
Changes begin at the personnel level with developing innovative leaders and teams, Autin said.
Employees need new skills focused on innovation, change and creativity along with the new technologies themselves, such as artificial intelligence (AI) and the Internet of Things (IoT).
As with any change, the behavioral aspects will be the most challenging. The industry will need leaders who model the right behaviors, encourage others to do the same and help shape the actions and beliefs of their teams.
“The industry needs transformational leaders. Leaders should promote a culture of empowerment, where highly skilled employees have the knowledge and resources to integrate seamlessly with technology to make decisions and carry out both daily tasks and long-term strategies,” Autin said.
“We need people who are visionary, inspiring, daring. We need risk-takers and thoughtful thinkers,” she added.
By Heather Doyle