Energy Transition - Opportunity for Blue Ocean Strategy?

In their ground-breaking book, Blue Ocean Strategy, W. Chan Kim and Renée Mauborgne pose a compelling question: Instead of struggling to survive in the bloody shark-infested "Red Oceans" of vicious competition, why not move to "Blue Oceans" where there was little or no competition? Then, in Blue Ocean Shift, they tell us how to make the move. Along the way, they challenge us to exploit new possibilities that are not available to organizations operating within the existing cost-value structure by enabling higher value AND lower cost. Further, they challenge us to think with agility by focusing on creating and capturing new markets, rather than continuing to compete for existing customers. 

I think that we can all agree that oil, gas and coal are abundant yet limited resources. The brilliant storyteller Daniel Yergin chronicles the struggle for oil, wealth and power in The Prize. Are you starting to see flashes of red in your mind's eye?

Yergin ends his second masterpiece, The Quest, in typical fashion, saying that creativity will be the ultimate resource for meeting the challenges to help us ensure energy security as we attempt to remake our modern world. Could this 'creativity' and the 'value innovation' described by Kim and Mauborgne be the same thing?

Might we achieve a focussed value innovation by crossing the boundaries of traditional energy markets? Some say, YES! Moves are afoot by enterprising developers to utilize natural gas as feedstock for small-scale Hydrogen generation units that produce solid Carbon as a by-product. The produced Hydrogen will generate electricity in Fuel cells that power Electric Vehicle (EV) charging stations. The Carbon by-product gets sold to rubber producers. The founders are also wise enough to install excess capacity in anticipation that Hydrogen can charge Fuel Cell Vehicles (FCVs) when that market takes off. In the meantime, the company can use the excess capacity to return Hydrogen to the natural gas network supplying the EV charging station. Who says the same supplier cannot serve both EV and FCV markets! Natural gas suppliers can also reduce carbon emissions and, as a result, may be willing to provide natural gas at lower prices. Making more bold moves, the developer could offer these products at the same $/MWh rather than differentiating between the EV and FCV markets. Due to the low relatively input and distribution costs, offering these products at lower prices than gasoline is possible while returning handsome profits to shareholders. The blue sea becomes a deep blue ocean!

Kim and Mauborgne acknowledge that Blue Oceans invariably will turn red as more competitors flock to the Blue Ocean you created. One obvious solution is that first moves make barriers so high that others find it difficult to follow them. For example, first movers who utilize CCUS to capture the CO2 generated when we make cement or companies that use biogas for steel manufacture and re-inject the CO2 from their furnaces into the molten metal with big capital investments show ways of making barriers too high for others to follow. Their only likely downfall would be if these first movers get greedy and later increase their profit margins so high that others can easily justify new capital investment to emulate them. Because of continuous innovation, these new competitors will likely use superior technology, thereby creating a stormy and red ocean from one that was blue and tranquil. 

Back to the CCUS example mentioned above, others are even bolder. Recently, Proton Technologies Canada built a demonstration plant that injects oxygen directly into abandoned oil wells. Traditionally, these chemical reactions would occur in the vessels of large refineries, but Proton has now moved them underground. The result is that CO2 stays in the ground and the process allows hydrogen only to come to the surface.

Spanning sectors and industries with partnerships to gain access to non-customers on the fringes or beyond our traditional energy industry boundaries has become easier to accomplish. For instance, West Lake Energy Corp has partnered with Greenbriar to use solar power for their well-pads, thus helping to reduce their carbon footprint and operating costs. This move also allows them access to more investment and new customers because they produce "Climate Differentiated Oil."

Char Technologies utilizes pyrolysis and NRG Energy exploits plasma technology to turn waste into energy. These efforts will allow cities or other industries to reduce the number of landfill sites they operate. The need for a traditional landfill may even disappear in the long run. Another benefit is capturing methane emitted by landfills and preventing it from getting into the atmosphere. 

These companies are real-life examples where businesses are successfully creating new demand, breaking the value-cost trade-off and taking advantage of uncontested markets.

From the above and numerous other examples, it easy to conclude that to be successful in energy transformation, any company, new venture start-up or established energy player, needs to have a Blue Ocean mindset to survive the rapidly shifting demands and thrive with lasting success.