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Last Updated: March 21, 2016
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The industry is still reeling from the impact of the latest downturn. The current oil glut started late 2014, and the end is still nowhere in sight.

So why ask the question and the suggestion of another crash ahead? Well, our industry has not had the best track record of keeping up with the times, and those sure are changing.

Ten years ago, proponents of electric plug-in cars were laughing stock and their creators considered out of touch loonies who were day-dreaming. Today, electric cars are being mass produced by Tesla in the USA (albeit not yet profitably) and most carmakers are making progress in leaps and strides towards bringing their own models to the market.

In addition, dozens of other giant corporations are investing billions to produce electric vehicles with a range between 200 and 300 miles between recharges that will cost around $30,000 in today's money and they plan to be ready by 2020. Battery technology is evolving at breakneck speed producing lighter and higher capacity units to improve autonomy and reduce overall weight of the vehicles while getting cheaper all the time. Tesla is expanding their factory capacity from 50,000 cars to 500,000 cars a year and sales are still good. In fact 2015 was a record year for them, one year into cheap gas.

So what is the fuss about electric cars you might ask? Well, every electric car will not use about 50 Bbl of oil a year and instead use electricity generated from a variety of sources that are not all hydrocarbon dependent. Right now the reduction in gas consumption is still negligible, but as the momentum of the adoption of electric cars as an alternative to traditional combustion engine cars increases, so will be the amount of gas and thus oil not used to fuel vehicles. This is taken from a study conducted by Bloomberg New Energy Finance group and the article was penned by Tom Randall: "BNEF The Next Oil Crash".

What is worrying is the fact that the oil and gas industry is dismissing the threat posed by electric vehicle adoption in an almost unanimous way. One can see it in their comments about this topic:

  • Exxon Mobil estimates the electric vehicle adoption rate at no more than 1% of total market until 2050.
  • Ryan Lance, CEO of ConocoPhillips says electric vehicle adoption will not happen in a significant manner during his lifetime and it will take another 50 years.
  • OPEC estimates electric vehicles to be about 1% of total vehicles on the road by 2040.

This is sounding the same way as the almost militant rejection of the oil and gas industry of the effects of climate change on the energy markets, dismissing the concept due to “flawed science”. The point is not so much if the science is flawed or not, it is the public’s perception of climate change as a serious issue, and this has become an undisputed fact with the signature of the Paris Accord last year on CO2 emissions reduction efforts. We all tend to forget that Perception = Reality, regardless of the fact that perceptions can be false or un-founded.

Then there is the argument of where those 1,900 Tera-Watts/hour of extra electricity needed to power all those electric vehicles is going to come from. It is hard to tell what the proportion of fossil fueled electricity to nuclear to clean power ratios will be, but for sure, it won’t be all from oil and gas. So the impact on oil and gas consumption will inevitably be one of overall reduction of hydrocarbon consumption, but more importantly, a fall in gasoline consumption that will affect refineries and gas station businesses in a permanent manner.

The authors of the Bloomberg study predict a time window somewhere in the middle to the end of the next decade (the earliest by 2023, realistically somewhere between 2027 and 2030). This is just around the corner in oilfield time scales.

There are plenty of examples of entire industries that have disappeared over the last couple of decades because of a dismissal of the effects new technologies would have on them. Kodak is now just a distant memory in older people’s minds because it did not believe that digital photography would make the old film and print obsolete and was just “a passing fad”.

There are others that understood the existential threat to their businesses and reinvented themselves, such as Xerox recognizing that the photocopier was dead the minute the modern scanner appeared.

So what is the message that we all need to read, understand and then act upon?

There are tremendous changes going on in the 21st Century. Technology is advancing ever more rapidly and the oil and gas industry better embrace those changes and adapt with them, lest it becomes the next Kodak of the world because it is so much easier to be in denial than to face facts. Electric cars are just one of those changes, the other one is the rapid development of green energy, mostly wind, solar and geothermal.

There is another example of how technology overtook our industry by complete surprise: the economical exploitation of shale oil and gas.

The oil and gas industry has known for generations the existence of these vast shale deposits saturated with oil and gas, but since the time we first encountered them, we deemed them uneconomical to produce. But then there came the time when the biggest oil consumer in the world (USA) ran out of conventional hydrocarbon reservoirs, all had been drilled. Well, some non-conformists and very dogged entrepreneurs started to experiment with shale to make it yield its riches in commercial quantities.

At the beginning it was almost a quimera, as it was too costly and the ideas to squeeze the oil or gas from shale rock had not matured. Then came the decade of 100$ oil and suddenly shale started to make economic sense, so much so, that it achieved two unintended consequences:

  1. The advent of the current oil glut.
  2. The demise of deep water.

Shale became the victim of its own success by oversupplying the world crude market, not with shale oil exports, but with crude that the USA did no longer need to buy. The established IOCs and NOCs dismissed shale in the beginning and only at the very end, just a couple of years before the glut arrived did the majors start to take shale seriously, once it was a proven concept.

But there is more. At the mid-30$ range, some shale oil seems to be still commercially viable, and all shale producers have not stopped to drill and much less have they stopped to flow their wells, so here is the second blow: new Deep Water projects are now hopelessly uneconomical, and unless they find a way to drastically reduce the cost of production, it will accompany Kodak and all those that could not adapt to change in the dust of the history books.

Hundreds of billions of dollars invested in all these complex and immensely expensive offshore developments are doomed if we as an industry can’t find the answer to significantly lower its costs.

All we have to do is look at the shale accumulation map of the world to see that we have the potential of producing oil onshore from shale for a very long time. Even if many countries ban hydraulic fracturing, there are still huge quantities of relatively easy and simple ways to produce shale oil and gas that will keep the price of oil low for a long time. Argentina and the UK are working hard towards exploiting their shale potential even in this depressed market scenario.

There may be a few geopolitical blips affecting the crude market, but it won’t be for decades. Even something as unthinkable that for example Saudi Arabia or Russia become failed states like Libya or Yemen and we lose 10 million barrels of oil production, the effect will not last for long. There are too many “pinch hitters” that will come and save the day, shale being one of them.

Let’s not forget there are millions of barrels of production currently not on the market due to conflict (Libya, Yemen, Iraq), sanctions and incompetence (Iran, Venezuela) to name just a few.

So what should the industry do about all of this?

We should all be focusing on the impact all these changes are bringing to our industry and look for ways to change so that we can benefit instead of being run over by change.

The oil and gas industry should collectively be researching effective carbon capture and sequestration technologies to reduce significantly the impact of CO and CO2 coming from hydrocarbon combustion.

Another idea would be to partner with leading combustion engine manufacturers to develop cleaner combustion engines, again to reduce or eliminate the pollution effects of hydrocarbon fuel combustion.

Last but not least, the oil and gas industry should be leading the charge into developing green energy, to eliminate fossil fuel combustion and save hydrocarbons for generations to come to produce all the other goods we take for granted in our lives that are all manufactured from oil and gas: fertilizers, synthetic fibers, resins, composite materials, lubricants, polymers, and the list goes on and on. There will be billions more humans on the planet, all wanting to benefit from these products and others not even invented yet.

I for one will keep trying to delay the time when I will become part of the dust of history. I will do this by keeping an open mind and embracing change instead of rejecting it.

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June, 12 2022