Emerging Themes In Oil And Gas Sector: Impact On Operational And Strategic Decisions

This assignment requires students to research into the emerging themes (social, work environments, technology and market - industry) within the Oil and Gas sector.

The evidence gathered to inform operational and strategic decisions.

Students should apply their critical understanding of relevant emerging themes to formulate alternative courses of action necessary.

Students should review the case study provided and undertake the following:

1.Critically evaluate the case study, outlining the ways in which the identified relevant emerging themes might impact on the current business strategies relating to the identified organisation or sector (Oil and Gas).

Your critical discussion should include a critical analysis of the ways in which those themes might affect the appropriateness of existing organisational policies and practices

Areas of focus can include any combination of the following

1. Political environments
2. Technological advancements
3. Demographic changes
4. Social trends and shifts
5. Industry globalisation
6. Legal transformations
7. Global economic issues

2.Critically evaluate how those themes identified could affect the operational and/or strategic decision-making necessary to shape organisations within the broad sector over the next five years. Your answer should use contemporary examples of how those emerging themes have started to be addressed within your business sector.

3.Provide justified recommendations for courses of actions that organisations within the broad sector can take to ensure that they are able to manage the effects of those emerging themes effectively.

The oil and gas sector divided into different segments by the Institute of American Petroleum, which includes the upstream and downstream. The oil and gas sector is enormously contributing to the economy and planning to save the resources for future use. However, there are many challenges faced by this sector, as there is a scarcity of the natural resources (CDP, 2018). With the rise in future demand, climate change, authority and declining public level connections, the industry finds it is itself in a elusivered condition. The oil and gas sector is facing the emerging theme in regulating in the market. This theme includes the allocation of asset and management, operational excellence and integrity, cost management, low carbon economy and rebalancing the asset portfolios. These themes and factors are not only affecting the internal environment but also affects the social, work environment, technology, and market (Strategy&, 2017).

Figure 1

(Source: Strategy&, 2017)

The decision making for the oil and gas sector becomes difficult for big organisation like OPEC, and other regulatory bodies which are planning to sustain their business for the future. Use of natural resources cannot be restored by any of it substitutes perfectly so this is the reason that companies of oil and gas is so concerned in saving and optimizing the use of these natural resources (Brandt, 2014). Organisation like OPEC makes the strategy of low carbon possible in the economy, which will help to save the resources. For this various decision-making done. This will include the use of the technology in operating the oils, gas industry, and follow the rules and regulations.  

There are many trends found in the oil, gas industry, which includes that existing fields, would operate longer. The capacity of yield will increase by injecting water or gas such as carbon dioxide. This will boost pressure of the reserves. The production of heavy oils from oil sands will become more environments friendly and the use of energy will reduce.  According to research by British Petroleum, it can analyze that the majority of the energy consumed by the economies, which are emerging in nature. There is a need to reduce the cost in oil and gas companies to match up the needs of the economy. 

From the case study, it can analyzed that there are certain areas, which affect the current business strategies of the oil and gas sector, which includes:

In this, companies are restructuring their funds in order to get the best results from them. The quantity of the infrastructure spent has found to stagger in the recent years. Domestically and abroad, cost, risk, procurement, communications and quality, knowledge of resources and time must manage in order to have the good governance model in the business structure. This model will ensure the natural resources can use for the long period (Shuen, Feiler and Teece, 2014).

International companies, which are dealing in oil and gas are looking forward to maintaining the balance between their operating models and try to match the demands for the efficiency globally. This will provide the data to the company about local responsiveness.  The operational excellence is required in the business to operate in the market efficiently irrespective of its nature and size of the business. This will be applicable to every type of business.

Emerging Themes

Companies are trying to control the cost of extracting and refining natural resources so that it can provide at low cost in market. While in today’s scenario cost management done by the expert. Uncontrolled cost can limit the growth strategies- postponing or even jeopardizing in the future plans and projects. In this winner will be those companies, which are able to manage their cost while optimizing their resources. One of the examples can be taken is of the OPEC, which is considered an organisation who have taken the revenues oriented strategy believing that this oil constrained world had arrived. It will be more important under the ground rather than on the market (Yusuf, 2013).

Increasing the sustainability of the energy system will need a mixture of keys. Renewable use of energy will show a crucial role in the global energy mix. The development of the infrastructure like building of smart grids will essential to implement so that the scale of challenge will not get underestimated. Oil and gas industry and companies are trying to experience the situation of dynamic and unpredictable future energy as they come to the sources of future sources of energy. This will increase the level of regulations and an evolution of the business model (CDP, 2018).

Industry and many companies are trying to develop the new value chain in the company, which will enable optimum and useful utilization of the resources. The value chain should be prepared in a manner, which enables the use of energy resources for future use too.  From trading to refining the fuel, to retail offers, to the integration of the clean energy sources- all these factors get affected by the value chain (Khatita, 2014).

In rebalancing asset portfolio, the allocation of asset will do again by the top-level management and authorized experts. This rebalancing in asset portfolio includes the sector, which is going to shut down due to the consistent losses in them, and the portion, which gets there viable, funds to improve (Warneke, 2014).

Areas of focus can include any combination of the following, which discussed below:

The public has less trust in the oil and gas sector due to some events like Petrobras and Nigerian Government scandals, which make the public perception not to believe in this industry. This can be seen from the table given below. The lack of faith in industry obscures the development of the project and endangers the government support for major infrastructure projects. It considered a costly problem that creates the inefficiency in the supply chain and can result in the huge fines and agreement cost. This will damage the linking economy and bring political instability in the oil industry itself (Raufflet, Cruz, and Bres, 2014).

Figure 2

(Source: CDP, 2018)

The countries like the United States and Paris have shown the boom in extracting oils and natural gas by using the technology so that scarce resources should utilized properly. Majority of the countries try to extract the resources from the rock as well as through the conventional sources as they are declining through the technological innovations (Yusuf, 2013).

Political environment

In near future, the world will demand more and more energy in near future. According to the research of the United Nations Organization (UNO, the world population will continue to grow at a pace of 0.8% per year from 2010 to 2040 (E&P, 2017). This increase in population will be primarily concentrated in Africa and Asia, which are driving towards the global competition and urbanization. Larger the population, higher will be the demand of energy in market. In addition, the research by UNO also indicates that by the year 2040, the global urban population will get double the rural population (Reboredo and Rivera-Castro, 2014).

From the case, it can see that there is a more challenging environment for the oil and gas sector. This fuel will remain the leading fuel for the transport for the next two or three decades. Oil and gas sector met the sharp confrontation around the world in many countries and communities that have skilled the negative environmental, social, and geopolitical consequences from the oil and gas exploration and development. Oil and gas sector also have the meet the expectation of their stakeholders in order to operate its functioning properly in the environment. However, in real life cases, actual presentation has dropped short of these prospects (Tietenberg and Lewis, 2016).

Countries like Brazil using the concept of sustainability in business.  This will make the globalization in oil and gas sector. They are offering the different and varied alternative strategies in producing the energies like liquid hydrocarbons will growing in the market due to high demand of resources (LUKOIL, 2018).  Like oils and natural gases by providing the adequate incentives and regulatory frameworks.  This will do to supply energy demand and replace the use of the less sustainable thermoelectric plants (Hickenbottom, 2013).

One of the famous examples can take off the Redline Agreement, in which the decision related to the cartel taken. The cartel is the formal agreement between the oil producers so to have the coordination and integrity in selling oil. Iraq Petroleum Company (IPC) has made the cartel in which 99.5% of the territories explored by them in Iraq. This agreement was a larger part of person secret arrangement made in the Achnacarry Castle, Scotland (Arvanitoyannis and Kassaveti, 2008).

Another example, which can take from the case study, is Gallop Poll in 2013, ranked the oil and gas industry as the least trusted industry. This loss of trust is because of debated lobbying and suits against the climate change policies and other environmental and safety regulations (Popoola, 2013). All legal rules in the oil and gas industry made while considering the economic condition and climate change.  From the graph, it can be clearly seen that the safety in transferring the gas and oil is taken care.

Figure 3

(Source: Technavio, 2018)

There are various issues which are taken into the consideration globally includes the economic issues which are contributing to the oil and gas industry. These issues relates to the policy framed by the OPEC, growing cost and exploration of the nature (Lukeoil, 2018). According to the World Economic Forum’s Global Agenda Council on the future oil and gas considers the strategies that can be deemed robust for the oil and gas industry in future 2degree Celsius world towards 2040 as well as most alternative futures (Haggerty, 2014).

It has analyzed that the process of strategic decision-making is the most important and complex of all the processes or functions of the management in every company and sector irrespective of its size, nature of the business. For doing this proper understanding of the environment and themes, which related to the oils and gas sector should understood by the manager. This will help them in better decision making in the organization. Majorly there are factors, which are categorised on the different stages and processes in the organization (Kilian, 2016). These factors are decision specific factor, which includes those factors, which affect the decision in familiarity, decision complexity, crises, and opportunities in the market and type of decision. External environment characteristics include environment dynamism, hostility, uncertainty, heterogeneity and environmental threats and opportunities. Internal organizational characteristics include the structure, size, performance, and power available to the company in the market (World Economic Forum, 2017). Management Team Characteristics include multiple dimensions such as risk propensity, education, experience, diversity, affective conflict, and complexities in the business.

Themes affecting the operational or strategic decision-making are as follows:

Use of big data gives the tremendous advantage s to the companies in storing and sharing the data. With the use of it in the industry, companies can easily able to identify the detection of the faulty equipments through sensors, better drilling, and connections of a new well and a predictable approach for the maintenance of pipelines and other equipment. In addition, it has other benefits too which includes managing all sort of data such as drilling data, data of fracking performance and rate of production within the sector. This will help in maximizing and optimizing design and production structure in the oil and gas sector (Li and Lin, 2016).

Figure 4

(Source: Strategy&, 2017)

To sustain in the market for the long period, the operational excellence should maintain by the company. These companies include who has less monopoly over the market like IPC, OPEC. If these companies need to maintain their stability for a long span of time then the availability of the resources, volatility in the market should be there, analysis of risk and regulation done by the companies to know so that the operating in the different market becomes easy.

If the company in the oil and gas sectors does not have the good equipment, it is hard to operate with excellence. This is the reason behind the asset management and allocation, which is linking towards the organizational excellence and integrity in operations. This will maintain the asset for the long time and ensure smooth and efficient operations (Reddy and Bantilan, 2012).

Companies should use the differentiated capabilities to become an important issue to get the achievement in future. In recent years, it has been identified that oil and gas sector has been considered by a varied range of operating the environments, including the onshore unconventional reservoir production and frontier exploration in increasing challenge and remote environments. The companies like Chesapeake Energy, EOG Resources, and Whiting Petroleum, which have personalized their working models to the exclusive demands of unconventional production (Barker and Jones, 2013).

Evaluating the portfolio considered simpler than using the divestment to generate the cash. This should see as restructuring the business to forecast the business condition to match with the organization competences. For example, in reassessing the portfolio, companies found to expand in preparing the low carbon environment (Adeduntan, 2017).

This technology helps in mapping and interpreting the hydrocarbons reserves. This mapping helps in improving the quality of reserves description as well as monitoring of expensive injection programs. This will decrease the drilling risk and maximize the profitability in changing and uncertain industry. 4D seismic also boost the efficiency of existing wells, which continuously decreases the need for additional well, or drilling (Delloite, 2015).

The oil and gas companies are trying to manage the cost by using the updated technology in the operation to reduce the cost in the business. The cost in oil and gas companies can control by detailed analysis, tracking, and forecast the demand from the market. Demand and supply, supplier, category cost are the cost drivers and influence the cost of procuring the oil and gas. The decision of procurement should be taken with due care. More predictable deliveries and bottom line cost savings by identifying the supply bottlenecks and opportunities. The check towards the better supplier relationship and competitive intelligence for vendors should check.

The oil and gas industry is in turmoil. In the near future the crude oil markets are found to be taken a bumpy path which results into the declining the oil prices. This leads to deep CAPEX spending reductions.  In the next five years, there will be changes in the oil supply and demand. The prices of oil and gas will decrease in the near future. The demand for oil and gas industry is going to be decreased due to availability of its substitutes. These substitutes include introducing of the hydrocarbons in the market, which can be purely the substitute for these natural resources.

Figure 5

(Source: EIA, 2016)

The graph shows the production and consumption of the liquid fuels. From the graph, it can be seen that the growth has been recorded until 2015-2018 but after that, there is a slowdown in the use of the oil and gas. The demand and supply both will be showing the decreasing trend due to scarcity of the natural resources and availability of close substitutes in the market (Deloitte Market Point Analysis, 2018).

Figure 6

(Source: Deloitte Market Point Analysis, 2011)

Drive a culture of innovation

Oils and gas organization should strive to focus on the areas like innovation while using the technology to save the resources for the future use. The company should open a channel for ideas and encourage having the new ideas and technology to enhance the firm’s capability to create a more fluid and multidisciplinary team (Yudha, Tjahjono and Kolios, 2018).

The development of the human capital is necessary in this case as they are the one who assesses their capabilities to develop the new techniques to substitute the use of technology. Investment in the human capital builds a strategic workforce plan to address any shortage of skills in them. They try to develop the management of talent in the industry, which will be useful for the future course of action.

In this oil and gas, companies try to invest in the collaboration with the other companies so that the mutual benefit can take out. This will help in the innovation of new techniques to save the natural resources and leverage the new business models (Galperina and Klen, 2017).

These companies should shift towards the society, which promotes the low carbon economy that can donate to a broader reform agenda for greener and work for resilience and inclusive growth. This shift to the low carbon economy will encourage the savage of the natural resources and optimally use of scarce resources (World Economic Forum, 2017).

Develop the global data standards and policies related to the data sharing and security. This will encourage the principle of transparency of operations at work. Globalization not only results in the integration of activities but also brings the unity in the oils and gas sector. This maintains the same standards all over the globe will enhance the proper utilization of the resources (Galperina and Klen, 2017). 

This will help in building the innovation ecosystem and innovate with his or her own organization to unlock the value and meet the ever-changing demand of the individual. This will able to meet the diverse needs of their constituents (E&P, 2017).

Conclusion

From the above discussion, it can conclude that the oils and gas sector is flourishing and finding the different ways to sustain a long time in the market by saving the natural resources. The whole industry focused on providing the natural resources while optimizing their use in the environment. There are a few themes, which take into consideration, which affects the working and nature of the oils and gas industry. This theme includes allocation of the asset, maintaining the portfolios, managing with the operational efficiency and excellence while coordinating with the economy with low carbon. These themes are affecting the political environment, technological advancements, and transformation in law and changes done in the demographic environment. This will also affect the social trends and shift towards the other side. All this themes will affect the decision-making taken in the oils and gas sector. For this proper decision-making is done to ensure that the shape of the industry will be done in the right direction so that use of natural resources should be done in a proper manner. Organisations like OPEC (Organization of Petroleum Exporting Countries) and other start use of low carbon economy, which increase the sustainability in the business. This problem can solve by using the high technology in the business. Use of the big data, hiring and retaining the talented workforce, globalized the standards, which derived towards the culture of innovation.

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