A future without change: What happens if the oil and gas sector doesn’t reform?
The oil and gas sector has been pivotal to the global economy for more than a century. It has created employment and enabled personal freedom on an unprecedented scale. It has changed lives all over the world. It is however increasingly beset by challenges and much of what it does is in very significant need of reform. There is pressure from environmentalists, from alternatives, and from regulators, but most importantly, there is pressure from investors.
Despite its success over the last 100 years, or perhaps because of it, the oil and gas sector needs reform. It has long been the bête noire of environmentalists, who have been critical of emissions and the impact of drilling, but their complaints are being accompanied for the first time with increasingly viable alternatives: In many countries, solar and wind farms in various guises are becoming an increasingly common sight. Rapid improvements in battery technology are also undermining traditional resistance to alternative energy.
At the same time, regulators are raising eyebrows at the oil and gas sector. Any industry that spans as many processes and jurisdictions is always likely to be somewhat opaque, but the sector’s traditional resistance to reform looks increasingly problematic, particularly given reforms that have taken place in other global industries (as we discussed recently).
The more things change…
The oil and gas sector has come under pressure on several fronts in the past and successfully committed to enough reform to keep resources flowing. For example in the mid-nineties, unleaded petrol and catalytic converters were introduced for car engines, satisfying governments and regulators and quieting the environmental lobby.
This time around though, and even before the changes that are likely to be forced on the industry as a result of Covid-19, investors seemed far less committed to the sector than in the past. According to The Economist, energy’s weighting on the S&P 500 dipped below 5% in June 2019, less than a third of its level in 2008. Further evidence of challenging times ahead come from the European Investment Bank’s decision to stop supporting oil, gas and coal projects by the end of 2021.
…the more they stay the same?
The oil and gas sector faces a choice: resist or evolve. Finding ways to resist the mounting pressure for change and assume that the economics will come around as it always has in the past could be a strategy that works out fine. There is no doubt that oil and gas is very tightly integrated with the global economy, the sector can still be profitable , and there is always a risk that reform of any sort would only make matters worse.
The problem with this approach is that the challenges are coming from so many directions. Ignoring the need for reform could ultimately lead to the industry becoming obsolete far more quickly than even the most pessimistic models predict.
The alternative is to find a way of evolving that satisfies regulators, governments and investors while also proving that oil and gas is doing as much as it can to be clean and efficient.
This could sound like a tall order, but with the rise of the blockchain it has suddenly become more possible. By implementing a blockchain structure, oil and gas could replace the current infrastructure with a tamper-resistant, transparent and highly efficient way of trading oil and gas contracts with relatively low investment costs. This would quickly deliver four benefits:
1. It would give authorised parties a view across the entire lifecycle of an oil and gas project which would satisfy regulators
2. It would mean that organisations themselves could isolate inefficiencies within each part of the process which could help encourage investors back to the sector
3. The efficiencies would also help reduce administrative and broker costs, which could lead to the ability to attract investment from communities that have previously been priced out of the sector
4. It would give oil and gas organisations a better understanding of their processes and where they fit within the sector. This would enable them to be leaner from both an operational and a storage perspective
PermianChain has created a platform that delivers all of these benefits. It is ready to go and can be implemented very quickly, so there’s no need for the sector to think too hard about whether to reform or not, or for it to commit to significant investment to get up to speed. If you would like to find out more, get in touch with us via social media.
About PermianChain
PermianChain is a proprietary technology platform that brings together the crypto-mining and oil and gas sectors. Using a permissioned access blockchain, PermianChain makes it possible to utilise stranded and wasted energy resources, unlocking liquidity and transforming the way that oil and gas projects are funded, produced, bought and sold. Established in 2018, PermianChain Technologies is a pioneer member of the Blockchain Research Institute (BRI) and start-up member of the Petroleum Technology Alliance Canada (PTAC).
