First oil

Our oil and gas industry is besieged by adversarial challenges across multiple fronts. Unfortunately, the industry is not a monolith. As such, it is difficult to develop an across-the-board strategy to combat these challenges. We’ve beaten back some of the assaults, but others seem interminable. Unfortunately, some of the confrontations are coming from within our industry.

Market-share challenge. The industry was flying in the stratosphere at crude prices above $100/bbl, until Saudi Arabia imposed its full-production gambit to increase its market share. The resulting downturn has forced operators outside OPEC to cut back their E&P budgets (>20%) and reduce head count (>150,000 jobs). We’re beating back the Saudi challenge through fiscal discipline, operational efficiency and Wall Street support ($13.7 billion in new equity and debt funding in the first six months of 2015).

Local hydraulic fracturing bans. While hydraulic fracturing bans across entire countries (e.g., France) and states (e.g., New York) are major impediments, the citywide ordinance in Denton, Texas, could have mushroomed to disrupt drilling throughout Texas, and spread to other parts of the North American shale plays. We were able to beat back the challenge in Texas through state legislation (HB40) that prevents a patchwork of city and county fracing regulations

Clean water confusion. The U.S. EPA study on hydraulic fracturing and its potential impact on drinking water resources was released in June 2015. The study concluded, “We did not find evidence that these mechanisms have led to widespread, systemic impacts on drinking water resources in the United States.” However, the study left the door open for PR mischief by anti-fracing groups by stating, “we have identified potential mechanisms by which hydraulic fracturing could affect drinking water resources.” As such, the industry needs to continue to educate the public on the safety of our hydraulic fracturing practices.

Climate change conflict. The upcoming United Nations Climate Change Conference plans to impose a universal, legally binding agreement to limit global warming to below 2°C by 2020. In anticipation of the conference, UN climate diplomat Christiana Figueres has asked the heads of six European oil majors to phase-out completely fossil-fuel emissions by 2100. The European oil companies had called for carbon pricing as a mechanism to incentivize cleaner energy. U.S. oil companies—Exxon Mobil and Chevron—have abstained from the carbon pricing initiative. The momentum, however, has shifted to the side of climate-change activists.

Et tu Pope? Through his encyclical, Laudato Sí, Pope Francis has decried modern society’s emphasis on consumerism and maximization of profits at the expense of ecological degradation. The Pope has called for lifestyle changes and made climate improvement a moral imperative. While the Pope has praised scientific and technological achievements, he has not fully acknowledged the role of fossil fuels and capitalism in lifting large segments of the world’s populations into a lifestyle of comfort that is the envy of every developing country.

Low cost to high security. Who among us does not want clean water and clear skies? Our industry has long progressed on its mission to supply energy to the world at the lowest cost possible. We should replace the low-cost component of our mission with exceptional protection of the environment. Let’s strengthen our oil and gas infrastructure, and enhance HS&E programs to the nth degree, so as to virtually eliminate spills, reduce emissions, and recycle water and other waste product streams. The basic tenet of modern business is to give the people what they want. Now that the people are insisting on clean energy, we will have to insist on their acceptance of higher fuel and petrochemical costs.  

About the Authors

Pramod Kulkarni

World Oil

Pramod Kulkarni pramod.kulkarni@worldoil.com