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Oil and Gas Industry Faces Profound Changes

If the oil and gas industry is to evolve and prosper it must undergo a transformation as radical and profound as that of the 1970s, says a new report from Chatham House.  

What Next for the Oil and Gas Industry? by John Mitchell with Valérie Marcel and Beth Mitchell, examines how long-term changes in the business environment, technological developments, climate change mitigation policies and the new geopolitics of oil are forcing seismic change upon the industry.

The report finds that the threat of 'oil running out' - for years regarded as the second big turning point facing the industry - is no longer an imminent prospect, with 'peak oil' increasingly looking like a misleading notion. On the contrary, it is demand that is nearing a plateau, at least in developed countries. And with reserves of oil and gas having more than doubled since 1980, the problem is not finite resources, but rather the rate at which these very large resources can be converted into reserves.

The oil industry can no longer rely on its monopoly of the transport market, a sector which constitutes half the global oil market. Use of oil in transport is being drastically reduced by competition from other industries, driven both by the increase in oil prices since 2005, and by government policies limiting carbon emissions.

John Mitchell says, 'Many in the industry have yet to grasp that the economic, environmental and geopolitical changes taking place outside the industry are going to demand a seismic response from within it. Business as usual is no longer a credible future: an epic, rather than incremental response is needed if the industry is to continue to evolve and prosper. The choice is to change or be changed.'

Advances in technology are also playing a crucial role in reshaping the industry, opening up new reserves of 'unconventional' oil, as they already have for gas, and creating new and previously unforeseen opportunities for private sector companies. But these companies cannot afford to be complacent. For investors who look for growth in value or volume, many private sector oil companies seem configured for the last era and not the next; their strategies look recycled, not renewed. Fundamental changes taking place in the geopolitics of oil are also examined.

The authors raise the prospect that the United States’ diminished demand for Middle Eastern oil could ultimately affect its willingness to protect sea lanes that mainly benefit Asian importers. Control of shipping lanes in the South China Sea, in particular, could become an increasingly confrontational issue, the report warns.

Notes to Editors

Read What Next for the Oil and Gas Industry? by John Mitchell with Valérie Marcel and Beth Mitchell.


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