Petroleum Industry 2020: Unleashing Industry Potential

Abstract

There is a heated debate about the fate of the petroleum industry between two schools of thought —the pessimists and the optimists. The pessimists strongly advocate that oil production has started or will soon begin unavoidable decline. They cite many examples of mature basins, such as the Lower 48 in the U.S. and the North Sea, and most obviously the fact that new discoveries have lagged global oil production since 1980. On the other hand, the optimists affirm that such doom and gloom predictions will fail, as did similar claims in the past. They cite the fact that global oil reserves keep increasing, thanks to developments in technology and better understanding and delineation of existing fields. They aim to add a trillion barrels to the current booked reserve of approximately 2.2 trillion barrels (produced plus remaining). They also count on the potential of unconventional resources, such as tar sands and oil shale. So, where do you stand in this debate? I am sure you would like to know where I stand. Over the past 150 years, the petroleum industry has never failed to meet the growth in demand. Will it fail in the future? The market has been effective in curbing demand and sustaining supply. Also, technology innovations have continued to reshape the energy landscape. This pride in historical success, however, may lead to overconfidence and tragic complacency. We cannot look for the future in our rear-view mirror. Furthermore, it is too humble of an aim to settle for past achievements. Let me illustrate this point by discussing some realistic challenges. At the resources level, the scenery of the oil field is not as green as before. The easy oil has been produced, and now is the time to bring marginal oil on and continue to sustain maturing fields. The addition of significant reserves from unconventional resources may not help to sustain much higher production targets. The environmental footprint, associated water usage, and gas emissions related to producing these resources are challenges that our industry needs to face at a much higher level. The cyclic nature of the industry is due to complex variables that are out-side our sphere of influence and cannot be predicted by even the most brilliant strategic planning experts. Therefore, if a "tsunami" of a demand/supply imbalance hits the industry, we will all scramble to recover the remains of the industry's image. This tsunami can be a heated demand or an excessive supply that can lead to a glut or to a shortage in the oil market. This has happened several times and it may happen again. In light of these challenges, it is time to aim high and not settle for only meeting demand. The issue we should address is how can we unleash the full potential of the industry? Currently, there is a flush of capital hunting for opportunities in the petroleum sector. There are also abundant hydrocarbon resources, as both pessimists and optimists agree that current ultimate recovery is low and can be significantly enhanced. The issue, therefore, is in the "soft" parts, which are the talent (employees), the leadership, and the business model of the industry. Are these related, and how can we look at them in a holistic approach?