Oil and gas is, apparently, the latest industry that millennials have marked for death. They don’t want to work in the industry because it’s dirty, difficult, and dangerous. Accurate as this may be, that millennial perspective is far from the whole story of oil and gas.
On the face of it, especially to millennials, the oil industry is only about making as much money as possible by pumping and selling as much oil as possible, harming the environment irreparably in the process. But that’s a rather narrow view. It seems all too easy set aside the fact that thousands of everyday products are either entirely or partially derived from petroleum and natural gas.
Yes, that Super Bowl commercial had it right, whether we like it or not. To be fair, some of the products made from oil derivatives do have greener substitutes, but certainly not all—including some important ones such as heart valves and synthetic fibers. And the alternatives are not always rosy either. The alternatives to synthetic fibers happen to be cotton, hemp, wool, and—not to put too fine a point on it—leather and fur.
Now, some millennial authors argue that the fossil fuel industry must die and that millennials would be only too happy to help that happen. But as dirty as it is, the fossil fuel industry is a survivor. Its business model—at least the model of those that tend to survive every price crash—is sustainable in the most general sense of the word.
One mark of a sustainable business model is the diversity of applications for its products. Another is one that recently received a major boost: technological innovation aimed at enhancing production efficiency and lowering production costs. When the new price normal is half what it used to be three years ago, you can either go on an innovation spree, or you can sink. This innovation, odd as it may be, is actually helping environmental sustainability.
It’s pretty simple: as business strategist Peter Bryant puts it, what’s good for the business is good for the environment. Bryant, partner at business consultancy Clareo, has three decades of experience in energy, among other industries, and is co-author of a report that reviews what’s in store for the forward-thinking oil and gas industry players. What’s in store for them is more technology, simpler processes, and higher productivity. All of this will curb the negative effect the industry is having on the environment, says Bryant, because the oil and gas industry’s road to internal sustainability runs parallel to environmental sustainability.
True, environmental sustainability has not been the primary drive for innovation, but now that the industry’s focus is geared toward efficiency gains and lower production costs, a reduction in carbon dioxide emissions, for example, is a logical consequence. Another such consequence is reducing the amount of resources such as fuel and water used in developing oil and gas fields on and offshore. A third one is making sure you extract everything you can extract from existing reservoirs before moving on to new ones. This is good for business as it costs less, and it is also good for the environment as it conserves resources and lowers emissions.
Activist shareholders have had a role to play, too, and so have regulations, strengthening the oil and gas industry’s motivation for change, be it unwillingly. This motivation has led to Big Oil investments in renewable energy and in carbon capture and storage initiatives—we’re talking hundreds of millions of dollars poured into green energy and sustainability research, which is not bad at all for an industry that in the public eye is the opposite of green. Some Big Oil companies are vocally backing a carbon tax in the United States, too.
At the same time, Big Oil is quickly steering into renewables. In addition to leaders such as Total and Statoil, which have been expanding into wind and solar power for some time, Shell recently announced a $1-billion annual investment in renewable initiatives, and its chief executive, Ben van Beurden, said his next car will be electric. A renegade, perhaps?
For those entrenched in the old assumptions that the world cannot survive without any fossil fuels, this growing shift to renewables could indeed look like reneging. For those at the far end of the opposing camp, this would appear to be rats leaving a sinking ship. The reality is that oil is a business. It is not an ideology and it is not a cause. It is a business—and businesses, if their owners want to keep them going, are adaptive systems.
The renewables drive is still gaining momentum, spurred forward by regulations and tech innovation. If pro-green regulations continue expanding and tech innovation keeps its current pace—or even intensifies—oil could become obsolete before the end of the century, at least as a source of fuel for vehicles and power plants.
Gas, the bridge fuel, will continue to be in demand for the duration of the transition to renewables, which will take decades. In other words, oil and gas won’t just disappear and the companies that extract them and refine them won’t just pack up and fade into oblivion; they will change. Some of them might even transform into renewable energy market leaders. What millennial wouldn’t want to work for a renewable energy market leader?
By Irina Slav for Oilprice.com
