Disruptive change

Olaf Martins, Global Engagement Manager, IOGP

Just before the summer break, I was at a discussion at Manchester University.  We talked about future global energy demand and the role that oil and gas will play in the energy mix.

At the end of a very lively debate, one of the students approached me and asked: ‘Don’t you fear a disruptive change in your industry?’

That is a very good question. Disruptions are happening almost everywhere now: Taxi businesses are challenged by the likes of Uber; the hotel business gets competition by private rent-outs such as Airbnb and the shops have to compete against online giants like Amazon.

Disruptions have become the rule rather than exception.  That’s true for almost every sector, including energy.

Disruptive changes come with very few ‘knowns’, but with a lot of ‘unknowns’. That is what makes them so difficult to spot in advance. You have to ask yourself:

  • Will disruption strike on the demand side or the supply side of my industry?
  • When will it hit?
  • What will trigger it?

The outcome of a disruption, however, no matter what the sector, is easier to predict.  It will affect price.

Fortunately – and here is where my confidence comes in — the oil and gas sector has a lot of experience with changing price environments.  Such experience has enabled it to learn and adapt as necessary.

As recently as 2014, the price of crude oil again had started to drop.  It fell from more than 110 USD per barrel in August to less than 50 USD per barrel in January 2015. In other words, in less than six months, prices plummeted by more than half and stayed there for quite a long time.

The industry reacted quickly to this disruption. It refocussed on core strengths and paid greater attention to the benefits of standardization.  IOGP’s Joint Industry Project on standardization in procurement is a prime example.

If you can handle the consequences, disruptive change can actually generate advantage. Which suggests that, scary though it might be at first, disruptive change is not necessarily against you.

Not long ago, there was a widespread fear that the world would soon run out of oil – and, as a result, prices would soar, and economies would collapse.  This fear was called ‘peak oil’.  And it proved to be groundless.  The combination of production techniques such as hydraulic fracturing, horizontal drilling and multidimensional seismic imaging actually led to an upsurge in production – mainly through shale, tight rock formation drilling in the US.  As a result, we are now enjoying an abundance of oil and gas.  The technology had been disruptive to the ‘peak oil’ theory. 

One of today’s biggest challenges is climate change. In order to mitigate its effects, greenhouse gas  emissions must be reduced. Some say this can only be achieved in a low carbon future that would be disruptive for our industry. But this misses a point.

The climate question is not about a low carbon future – it is about a low carbon emissions future. For instance, one option could be to apply CO2 capturing and storing technology to individual cars, thus enabling emission-free motoring.

Such a disruptive breakthrough – already being worked on – could rapidly reduce huge amounts of emissions by building on existing infrastructure (service stations) and technology (the internal combustion engine).

Is this going to happen? I don’t know. That’s the thing about disruption.  You don’t know.

But to answer, at last, the initial question:   No. I do not fear a disruptive change.  Change – disruptive or otherwise – is a part of our lives.  It is up to all of us to ensure that changes continue to be for the better.

About Olaf Martins

Olaf is IOGP’s global engagement manager.  He has over 25 years’ experience in the industry. Before joining IOGP Olaf was with ExxonMobil, where he held a number of senior public affairs roles, including most recently his position as ExxonMobil Central Europe Holding’s manager of government relations and media. Olaf’s educational background is in economics.

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