The Art Of Endurance

With the last decade being a heyday for oil prices, the energy industry has enjoyed a steady growth model without much challenge or restriction. Unprecedented growth happened globally and energy centres thrived.

Then, the price of oil plummeted. Supply is up and demand is down, and we are not sure that it’s going to change anytime soon. Primarily a result of advances in technology, we have become so proficient at oil supply that we saturated the market – fracking being the primary driver. Today, we are faced with a $50–$60 oil price, and the industry is left with the question, “Is this our new normal, or will things improve?”

While we have experienced many oil price ranges and economic influences in the oil and gas industry, and while the industry was born of the boom and bust culture, hitting tough times is still a rude awakening and requires fast adjustments and entirely new courses of action – not entirely a bad thing, because the simple act of being “creative” and “resilient” can only make us stronger in the energy arena.

According the University of Texas at Austin’s Centre for Energy Economics, they’ve found that small supply imbalances or changes in demand often accompany large swings in price, because financial trading exaggerates and accelerates fluctuations as traders unwind positions. That seems palatable as an explanation for such a radical drop in price. And then of course there’s the media that propagates all the bad news and drama – which then perpetuates negativity and demise in the market – and people start to play safe, stop taking risks, and ultimately postpone growth decisions and outcomes. The media has great power because of its communication channels and networks, so perpetuating a constant barrage of negativity, layoffs, and devastation is clearly a downward cycle of “media demise.”

So that’s how we got there. New technology advances create abundance of supply and prices go down. Then, financial trading and media exaggerate the situation into a downward spin and there is a dramatic plummet.

Drama is contagious and so is the conversation of low oil prices. Overreactions tend to become a self-fulfilling prophecy and we don’t think we are even a part of it, but we are. Every time we entertain the problem rather than the solution, every time we think that financial markets and media are the “truth” rather than an exaggerated focus of a specific short-term view, we involve ourselves.

So what can we do? How can we be responsible for creating a powerful, sustainable energy industry that is not subject to massive fluctuations? How do we stabilize ourselves with incremental, sustainable growth? These are the questions of the day – and they are great questions because the answers to those questions are truly sustainable.

Turning Problems Into Opportunities

Technology

Where there’s a breakdown, there’s the possibility of a breakthrough. As we advance in technology, we can build new methods of sustainable production to avoid price plummets in the future. We can design and architect those systems into the global oil plays with a global governing body to support and oversee things from the big picture. Fracking and other forms of energy abundance is a privilege, and that energy abundance needs to be managed in such a way that it doesn’t cause a counter-demise. We can create that.

Financial Markets

Financial markets can also be designed so that small supply imbalances or changes in demand do NOT cause large oil price swings and, therefore, create economic demise. This is another structure that needs to be built into the financial market system. That would have integrity. Not doing so leaves industries at the mercy of financial markets – and who benefits? Yes, the financial market.

Meanwhile, the energy industry will struggle with a contraction in upstream oil investment, cash flow considerations, tightened access to capital, and financial uncertainty in the market. This is a direct result of a lack of foresight and vision for the big picture on the part of the financial market and its overall operating system.

Media

Media is often a reflection of the current mindset. Drama and negativity seem to sell. But why is that? Look at the damage it does to our economic growth. If there was ever an example of self-sabotage, this is it. We become engrossed in all the bad news and then react accordingly. Then we wonder why we got laid off the following week. We are responsible for what media puts out there, and media moguls need to clearly take responsibility for all the “bad news” that is repeatedly blaring out into the world – at the expense of ourselves. It is short-sighted and extremely damaging. According to the ErnstYoung (EY) report, Resilience in Times of Volatility, “Despite substantial adverse implications for the oil and gas industry, the collapse in the price of oil will generally have positive implications for the global economy. A US$50 reduction in price of crude oil translates into a US$4.6 billion-per-day stimulus to the global economy, or more than US$1.7 trillion per year.” With transportation as a primary global economic driver, the
50 percent reduction in transport costs would clearly make an economic impact.

Our media needs to be able to focus not only on the problem but, more importantly, on the solutions and the bigger picture. We need to report content that is responsible for how it impacts viewers and readers and what the reactions of such information can be. We need to be proactive rather than reactive – and when we do that, the world will act accordingly. Imagine a world where, instead of reporting 17,000 layoffs in Alberta, we reported instead what those 17,000 people were creating to have a sustainable energy outcome in the world of constant innovation, creativity, and improvement. Now THAT’S worth talking about!

What To Expect In The Future

There seems to be common agreement that today’s current $50 – $55 per-barrel oil will increase incrementally over time. Gradually, prices will incline – however, US fracking plays are expected to continue and peak in about 10 years’ time. Oil demand, while difficult to predict, will most likely incrementally increase as globalization comes into play and the overall global economy progresses and improves. As the recent EY report on oil prices succinctly put it, “Now that the threats around ‘peak oil’ have seemingly been dismissed, might we be transitioning to a world of peak demand?”

Endurance

In tough times, the call is clearly to get tougher – and that’s exactly what we are doing. We are evaluating our current systems, creating longer and more sustainable solutions, and turning problems into solutions. Lower oil prices are then not necessarily a bad thing, but rather a reset button that will have us endure the tough times and be resilient in the future. This era of business calls for entirely new business models – ones that demand creativity, collaboration, and harnessing global markets in order to thrive. We will adapt business cultures of operational resilience, and we will elevate ourselves into new, sustainable models. All the while, we get stronger and build our endurance muscles. There’s nothing wrong. Indeed, this is the progress of man and always has been.