While the energy practices within large consulting firms typically house their oil, gas and utilities experts-this structure is no longer sustainable, at least not from a narrative perspective. The story lines raging in these sectors no longer fit into a single article. This magazine issue's energy industry focus concentrates squarely on the challenges facing U.S. utility companies. While these threats and discussions certainly delve into oil and gas (shale gas, in particular), we sat down with Bain & Company Partner Andy Steinhubl, who co-leads the firm's oil and gas practice in the Americas, to focus more deeply on oil and gas issues.

Consulting: What are some of the most important forces driving change in the energy sector (in North America)?

Steinhubl: Two major forces standout:

1. the supply discontinuity of natural gas, which is being driven by technology breakthroughs allowing the cost-effective extraction of shale gas; and
2. The renewed scarcity of oil driven by rampant demand growth in China and other developing economies, that is compounded by a continued OPEC supply discipline and an increasing scarcity of other 'easy oil.'

Given the abundance of shale gas resource within North America (NA), the US has 'flipped' from requiring natural gas imports through liquefied natural gas (LNG) at long-term prices likely north of $10/MCF (one thousand cubic feet) to natural gas self-sufficiency-estimated for at least 40 to 50 years at current consumption levels-at prices more like $5/MCF (and lower currently).

The emergence of long-term low-cost natural gas, in many cases from new areas, has created knock-on effects across the value chain, including requirements for new pipeline and processing infrastructure, and displacement of coal as the advantaged fuel source for new power generation. On the oil side, rising and sustainably high oil prices are driving up gasoline prices faster than NA economic growth, leading to demand depression and destruction, and hastening the evolution to alternative fuels such as ethanol, or alternative transportation systems such as Electric Vehicles (EVs).

Consulting: What are the top three or four challenges confronting the sector at large right now?

Steinhubl: Bain actually sees five key challenges confronting the sector:

1. Continuing to address environmental and permitting issues being raised regarding shale gas extraction techniques and implications for ground water supply and other environmental footprint issues;
2. Building out needed new natural gas infrastructure to accommodate new gas supply, transportation and storage;
3. Ensuring the full potential of long term low-cost natural gas is fully captured, especially its use in power generation (versus competing coal interests, as well as regulatory trends toward renewable, non-fossil fuels such as renewable portfolio standards (RPS));
4. Evolving biofuels supply and technology from current corn feedstock (which competes in food markets, for water supply, and has marginal all-in carbon impact) to more environmentally and economically effective lignocellulosic and algae-based feedstocks. Addressing new infrastructure requirements to supply certain biofuels; and,
5. Accessing economic oil resources, exacerbated by current hiatus in the Gulf of Mexico caused by the oil spill, as well as the longer-term cost impacts of new operating and permitting procedures.

Consulting: How has the nature of the energy sector, including the companies that may be considered part of the sector, changed in recent years?

Steinhubl: Three major trends characterize the changing landscape:

1. The substantial expansion of Chinese and other Asian energy companies, and their aggressive M&A activity driven by long-term security of supply issues
2. The accelerated movement by international oil companies (IOC's) into natural gas, both through shale in North America and increasingly abroad, and through LNG and other large gas projects globally; and, further gravitation toward the most technically-challenged oil resources, such as deep water and oil sands, being driven by the reduction in 'easy oil', less technically-complex opportunities; and,
3. An expansion in the role of joint ventures in the industry; in NA, this is often between independents with early shale positions and extraction skills, and IOCs who are later entrants (and seeking learning as well as asset positions in exchange for funding).

Consulting: What are some of the most notable trends within in the industry in terms of strategy and processes?

Steinhubl: Bain sees a shift in thinking from 'oil' company to 'energy' company. There is an increasing acceptance of the importance of alternative energy (within next 20 years, at 20 percent plus of the mix) and how to preposition companies and business models accordingly. Reexamination of safety and operational risk processes in light of the oil spill is another notable trend.

Consulting: What sorts of services, expertise, skills and projects are energy companies seeking from their consulting partners?

Steinhubl: Portfolio and technology strategies are prime areas where Bain is partnering with its energy sector clients in response to changing competitive and commodity market dynamics, including the evolution toward alternative energies. We are additionally serving our clients by helping to reduce organizational complexity and improve organizational effectiveness in light of increasingly challenging projects-partnering to stretch the capacity of human resource benches, optimize supply chains and lean operations, and help to accelerate continuous improvement overall as our clients face continuing cost pressures.