Business Essentials for Professionals


Oil Industry has to innovate in order to survive

The oil lobby has for long mocked and called Climate Change a hoax. Unfortunately the reality of the situation has caught up with it. Unless the oil industry innovates, it will be wiped out regardless of its argument that the developing world needs cheap energy. The survival of our very species is at stake, the cost of cheap polluting energy is not material.

In every crisis lies a hidden opportunity. The oil industry views the Paris climate accord not as a death knell, but as an opportunity for further growth and innovation.
For an industry which has been defensive for years on issues related to climate, the impact that climate change globally has forced it to revise its earlier position and accept the fact that in order to mitigate the effects of climate change, much of which is a result of its activities, it has to innovate and change.
The historic landmark agreement by 195 countries last year has been perceived by the oil producing countries as a defeat of their lobbying actions. Executives and oil ministers have now sounded a clarion call at their first major meeting since the 2015 Paris Accord for more research into ways oil production can be perfected and cheapened.
By doing so they hope to sharply cut emissions from the extraction process of natural oil and gas and thus protect themselves and their industries from the coming climate change legislation.
"If you could eliminate all of the carbon dioxide from fossil fuel combustion, then you could use those fuels as long as you want," said Robert Armstrong, director of the MIT Energy Initiative, in an interview on the sidelines of IHS CERAWeek, the world's largest gathering of oil executives.
He went on to add, "It's just a matter of making those technologies competitive in the market."
By increasing efficiency in their operation, essentially the oil industry and its lobby wants to convince governments that the extraction oil and gas need not be stopped.
Threat perceptions are high. Saudi Arabia's oil minister, Ali Al-Naimi, has called climate change a greater challenge for the industry than the glut in the oil market.
"We recognize the threat posed by climate change. We and many others have invested time, money and brain power into seeking technological solutions to the challenges posed by climate change, in particular with carbon capture," said Naimi.
As per Ryan Lance, CEO of ConocoPhillips, the largest oil producer in Alaska, who has, “… seen the glaciers melting," termed climate change as a "serious problem. The world needs more energy, but it needs less CO2. We think we can get there," said Hess in an interview.
This is in stark contrast to the erstwhile view in the oil industry which earlier called Climate Change a hoax. Some energy companies are already facing enquiries over their climate change disclosures.
Vested interests are now expressing greater confidence in the industries scientists to find means on preventing the release of more carbon during the extraction of natural oil and gas. These are the very scientists who perfected the art of horizontal drilling and fracking which reinvented the oil industry.
Significantly, the Paris Accord has yet to be ratified. It aims to limit the rise in global temperatures to "well below" 2 degrees Celsius (3.6 degrees Fahrenheit), a level scientists see as a tipping point.
Industry leaders, the world over, have said it is hypocritical for societies to continue to use products derived from fossil fuels while demanding an end to oil and gas extraction.
"It's a bit Pollyannish to say that we can move away from the carbon age and still have rising expectations for living standards," said Mark Papa, CEO of Silver Run Acquisition Corp.
The former CEO of BP PLC, John Brown, sees climate change as one that is life-threatening for the oil industry.
"To have a seat at the table and shape the future is, I believe, vital. We do need a planet upon which to conduct future oil and gas activity," said Brown.

Debashish Mukherjee

Markets | Companies | M&A | Innovation | People | Management | Lifestyle | World | Misc