Today there are many dramatic and perhaps unprecedented changes in the global oil and gas industry. Such changes include unstable geopolitical relationships, emergence of new competitors, changes in supply and demand dynamics, social and environmental pressures and the demographic shifts. Such factors are randomly transforming and reshaping this industry. Despite all the challenges however the indisputable fact not only in this industry but also the whole world is that the global demand for energy will continue to increase dramatically. This is because the world population is consistently increasing and also there is a strong desire in the developing nations to achieve economic prosperity. Industrial experts may disagree about the growth rates. However we cannot dispute the fact that growth in the demand for energy is inevitable (Kenneth, 2007).
The world population grows at a rate of 1 million people every 24 hours. By the year 2030 it is expected that the world population will increase with 8 billion people. The population today is 6.5 billion. 95% of the growth is expected to occur in the developing world. A secure, affordable, accessible and ample supply of energy is essential to both economic growth and reasonable standard of living. It is therefore natural to expect that the developing countries, with their growing economies and populations will drive increased energy demands.
The world today consumes about 230 million BOE/D with oil and gas supplying about 60% of the total demand, coal supplies 20% and the remaining 20% comes forms from such sources as nuclear, hydro, wind and solar. By the year 2020, the world energy demand is expected to increase by about 55 million BOD/D, or 24%. In actual terms it is an increase from the present 230 BOE/D with about 80% of this growth coming from the developing countries. The oil and the gas industry will continue to supply about 60% of the world energy demand by 2020. This means an incremental 30 million BOE/D of oil and gas is required. Surprising enough this does not include the new production that will be needed to offset the natural base decline. This is a daunting task. 15 years is quite a short time given that there is a long lead time for large projects in our business (Webb, 2008).
For this growth to be achievable there is need to have full commitment of resources i.e. the human resource, capital and technology. There is also need for collaboration between all the global players, including the international oil companies and national oil companies and also the various governments. There are four major challenges that the oil and gas industry need to address to meet future demand for oil and gas (U.Kenergyresources, 2009).
There is an urgent need to explore the world in search of economically viable oil and gas resources. Many of the players in this industry have expressed their confidence in the unlimited sources of this commodity enough to meet the future demands. However, more than 80% of the oil and gas resources are in the hands of the national oil companies and the host governments. They are therefore not available for the international oil companies. Some of the national oil companies (NOCS) are going ahead to fully develop these resources and increase production. The Saudi Armco is the best example of this. However the greatest problem is that NOCS are either not doing so or if they attempt to do so they are not doing so at sufficient levels. It is therefore very necessary for the international oil companies (IOCS) to be allowed access to this resource. This will be advantageous because the IOCS will be able to apply their workforce, capital, and technology to the potential and thereby increasing the international oil and gas production.
The current economic trends have not been working well for the oil and gas industry. This economic challenge has in fact prompted increased resource and economic nationalism. The issue has also fostered the emergence of aggressive new competitors. The IOCS and NOCS will have to find new, innovative, creative ways to work in partnership so as to increase the value and also meet the respective needs of both parties. Such a partnership may involve things such as; integrating the value chain. (Upstream, midstream and downstream); establish joint investments outside the host countries; agreement of commercial terms and risk sharing; form the shared market control; employ greater technological transfer and also develop a local workforce.
The availability service and the increased cost of search service is another major challenge. Seismic, drilling, facilities, engineering, procurement and construction are some of the services that are most challenging in terms of cost. This is definitely a function of higher commodity prices which has actually driven the industry’s activities to a point that is now becoming challenging to handle. The industries capacity is being increased in some areas, particularly drilling rigs, new builds will be available for onshore over the next two years while for the deep waters will be starting in about 3 years time. However building of rigs and new equipment will only solve part of the problem. Trained and experienced people will be required to operate them. This could be a limiting factor. All this means that as the industry explores new areas, more complex, long lead time projects around the world, the actual cost struggle will be swelling. We cannot also be sure of what oil and gas prices, our revenue stream will be when these projects take effect in 4 to 6 years from now (Ashley, 2010).
The other great challenge is that of new, breakthrough technologies that can help find, develop, and/or produce more oil and gas products. Technology has been the driving force behind every other industry across the world. The challenge of increasing the oil and gas production safely lies in the level of technology applied. The safety, efficiency and delivery of oil and gas products in an environmentally friendly manner lie in technology. Not long ago 600 ft water depth was considered optimal and the economic limit. No one could imagine that the industry could record and image reliable seismic data below salt, or that shale, which are known as sources of seal rock, could actually be used as prolific reservoirs if stimulated and completed properly. However the major concern is that this industry is not devoting sufficient labor and capital to developing innovative and breakthrough technologies.
As opposed to what the general public believes the oil industry is just as competitive as any other industry and for this reason it is only wise to have an upper hand when it comes to competition. This means there is not much collaboration or sharing as there should be. The industry hence needs collaborative partnerships, alliances, or even joint ventures involving oil companies, service companies, governments and academia. Pooling of this diverse knowledge will serve to achieve the set targets in a far lesser time span and cost than when everyone goes about it alone.
The other big challenge is that of having sufficient well trained and capable technical people. This issue has been mentioned every other place and perhaps action is what needs to be taken. The industry will perhaps need to retain their retiring professionals past the normal 55 to 60 years retirement age. This may be possible through perhaps granting them innovative compensation schemes, giving them different tasks or telecommuting processes. If this is successful it can save the industry a complete 5 years. We therefore need to ensure that our elderly workers have enough time to transfer their knowledge and also mentor younger employees.
We will also need to attract the young bright minds into the science and engineering disciplines and then into the oil industry. The industry will hence need to reserve the negative perception ni the society about the industry. As earlier on outlined the major goal of the industry is to ensure economic well being and better standards of living of the world. This is only possible if the industry is able to meet the global oil needs as they arise. It is necessary for the young generation to see the open opportunities ahead of them and take advantage. The young generation who are the new majority i.e. the young women who have traditionally been sidelined in the disciplines of science, mathematics, engineering and technology need to be seriously enticed to study these curriculums.
The world also needs to improve its business and technical processes to allow greater collaboration, teamwork and knowledge transfer from a variety of remote locations. Higher levels of productivity and the time allocated to value addition will need to be achieved. The above outlined challenges are critical in the oil industry and the wide world. Economic growth and a good living standard for any people is dependent on the accessibility to the ample supplies of affordable and reliable energy. The oil and gas industry will most definitely be a major contributor.
The oil and gas industry still remains optimistic about maintaining a constructive relationship among the producing countries, consuming nations and the energy companies. Common misunderstandings and disagreements may occur but the good thing is that there is one common interest with all nations i.e. the desire to ensure an adequate energy production. The cooperation is a proven fact throughout the history. To be sure, the factor is not as controllable as technology, but an excellent record has been established. This is a credit from the mutual benefit that energy development creates and the fact that there are always positive results with the developing nations (Wood, 2004).
The whole idea is trying to prove the fact that none of the potential challenges we are facing is likely to become as serious as to pose a threat to the world supply over the extended future. This confidence is actually backed by the success the industry has had over the years. There has been problems that have one way or another been dealt with successfully. This industry has established new arrangements with governments, it has also constructed new organizational structures and developed new technologies to meet the challenges it has periodically faced. The positive response to changes has always been the great strength of this industry and the source of excellent opportunities for the people who cause the industry to operate.
The success of the oil and the gas industry will require continued adaptation of the complex business model to counter the unexpected future economic, political and environmental challenges. One certain fact is that the demand for oil and gas will continue to increase. These two products are also expected to remain the leading sources of energy for some time to come. There is also hope that the exploration efforts will be intensified. This effort is also expected to bear fruit. This may well be facilitated by increase in the exploration areas and also growth in technology. Price of this product is hard to predict. Prices could grow substantially or not at all. The industry must however push ahead to keep production costs low, while at the same time developing new technology that is controllable (Izundu, 2007).
Today the efforts of getting oil and gas are becoming more of a challenge. This industry has made significant new discoveries in the last few years. However, these discoveries are being made at greater depths on the land, in the deeps sea, and at more substantial distances from the consuming markets. To maintain the record there has to be new and better technology application. A sufficient solution to this challenge is the technology that directly detects and distinguishes the presence of hydrocarbons. This is just a prospect that needs to be worked on.
There are many challenges facing this industry. The challenge is to ensure that the new and the discovered resources can be produced in an economically and environmentally friendly manner, to meet the increasing demand and also to offset natural field decline. We have earlier on shown that this is achievable, but the challenge is to maintain the performance. The pressure to do this will intensify because the absolute requirements are higher (Greer, 2006).
There are some other major problems which include: This industry usually experiences unprecedented market volatility and price fluctuation; the economics of high prices translate to higher project costs; the scissor effect. Once the prices fall to lower levels, projects may be shelved, postponed, or even canceled. The soaring costs of projects have offset part of the incremental investments; there is the prevalent market volatility (Eurasia, 2008).
This is an energy security concern for both the producing and consuming countries; cost control and reduction has also proved to be a major challenge; the implementation of large sized projects in the severe environment is quite a problem; ensuring project viability even in the low price environment; the emergence of innovative schemes involving all the stakeholders i.e. oil and gas companies, service companies, and the host countries; the challenge of climate change ( clean fuel production and the renewable); this high technology sector requires key personnel with the petro-technical qualifications and experience necessary to excel in the increasingly complex technical disciplines; about 50% of the present day workforce will be lost to natural attrition through retirement. This will happen within the next 10 years. The junior recruits however comprise barely 15% of the resource base; there has been an increasing perception amongst the academicians that this is a sunset sector. This combined with the cutbacks in the technical and the earth science programs in the present day universities to reduce the inflow of skilled staff to the working population; and the industries bad reputation to its vulnerability during the boom and recession cycles presents a major obstacle to recruitment (Abdallah, 2009).
The proposal of increased cooperation between the national oil companies and the international oil companies will be a major opportunity in the quest to address the key challenges facing the industry. The prevailing standards for NOC and IOC cooperation can be improved to optimize the industries potential with due respect to the regulations, rights and expectation of all parties. Another major boost is enhancement of the cooperation between the national, international and services companies from the point of production to consumption in this investment. There is also need to have enhanced technology and human resource development. An attempt to draw up IEF principles and guidelines on NOC-IOC cooperation, based on best practices around the world, is a possible satisfying tool to facilitate this cooperation (Young, 2009).
Various recommendations are available in arriving at lasting solution to oil problems. They include: There is a projection that suggests that the worldwide investment needs an amount of over $25 trillion up to the year 2030. This is a huge challenge in such a time of unprecedented uncertainties and market volatility. More professionally qualified and skilled personnel will be needed to meet the future global oil and gas requirement. There should be market agreements to settle the issue of the wide range of prices and conditions. Long-term solutions to such misfortune should be put into place. There should be an urgent need to settle the short term volatility in the market through predictable tax regimes and clear carbon policy frameworks.
There should also be cross investments through the value chain since this will be beneficial to both the NOCS and IOCS. The R&D efforts should be upheld in the pursuit of the set efficiency levels and cost improvement through technological advances, despite the slowdown in today’s economy. New technologies such as carbon capture and its storage are of mutual benefit since it contributes to the reduction of carbon emissions while at the same time enhancing oil recovery which should be greatly encouraged.
There is also need for realistic, stable and long-term policy frameworks. The need to be honest will go an extra mile to reducing uncertainty and temper pernicious oil price volatility. In conclusion it is only important to keep abreast of the current global changes and be wise enough to react first enough to avoid the negative consequences. All in the entire good thing is that the future still holds promises for this oil industry. The prevailing challenges are also not out of hand.