Abstract
We propose two analytical models to characterize the relationship between technological upgrading and innovation in the oil & gas industry. The first one is an “optimization model” which focuses on the trade-offs between profit maximization and environmental compliance cost. The other has been developed based on “predator-prey” model which captures the dynamics of biological systems. Our study contributes to the strategic planning process for sustainable development by providing the insight that optimal allocation process is determined by multiple operational factors, including a firm’s competitive ranking among its industrial competitors, industrial consent on the concurrent rate of return on capital investment, the projected demand of oil & gas in future, and a change in environmental compliance cost. Further, we add to the robustness of the optimal allocation process by providing binding conditions of the set of solutions.
Highlights
The study contributes to the strategic planning process for sustainable development by providing the insight that optimal allocation process is determined by multiple operational factors, including a firm’s competitive ranking among its industrial competitors, industrial consent on the concurrent rate of return on capital investment, the projected demand of oil and gas in future, and a change in environmental compliance cost
The oil and gas industry is vital to the United States (U.S.) economy supporting nearly 10.3 million jobs in the US and nearly 8% of the nation’s gross domestic product (American Petroleum Institute [API], 2018)
While there are many more other cases for consideration, for purposes of this study, only presented are the ones thought to have a physical meaning associated with the dynamics between technological innovation and upgrading
Summary
The term “sustainable development” in oil and gas industry refers to the sustainability of human existence by carefully balancing social, economic, and environmental capital in a continuously changing world (Gross, et al, 2018; Perkins & Neumayer, 2005; Weyant, 2011). A challenge in the oil and gas industry and in any heavily regulated sectors which have experienced rapid technological changes and regulation requirements, is the dilemma of how to improve operating efficiencies by balancing profit maximization, while maintaining environmental protection. Following the anecdotal discussions and extant literature, the authors categorize the investment activities in the oil and gas industry into technological upgrading and innovating. Both upgrade and innovation result in change, and both are attempting to make improvements.
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