Wednesday, March 23, 2016

Is Predictability Realistic in Oil and Gas Industry


 Is Predictability Realistic in Oil and Gas Industry

I found it interesting that one of the articles used oil and gas industry as an example to demonstrate predictability within the business realm. Although from a market-standpoint I do agree with this categorization since weather and archival information on usage can provide a robust foundation for future planning; I still hold a mild disagreement. The reasons behind my disagreement are in two folds. These are 1) environmental implications, 2) political forces v/s peak oil.

Environmental implications
Projects undertaken in the energy sector are inherently volatile and dangerous and if gone wrong at any stage (such as execution, implementation or normal operation hours) can have significantly unfortunate implications. Apart from many, the two famous examples of this are the BP’s Deepwater Horizon’s Oil Spill and Exxon Valdez. The point I’m trying to make is that when such an incident occurs the company’s management cannot solely rely on their ‘classical’ strategy abilities; rather a great amount of adaptability is required due to a very fast changing market scene stemming from the negative publicity. Also these incidences cannot be sidelined as outliers because oil and gas endeavors go hand in hand with medium to severe environmental consequences. This also justifies the reasons behind oil and gas companies having a strong public relations presence. On the flip side it can be argued that such incidences should primarily affect single project management strategies and not the over all goals of the company. However incidences of such magnitude require that the company rethink their strategy on every level of the hierarchy to make it effective.

Political forces v/s peak oil
Natural gas produced from fracking was not a viable option 50 years ago. But due to the crisis experienced in 2008 and the technological advancement, exploration and upstream operations experienced a massive boom until middle of 2015. Since then there has been a glut in the market as there is more supply than demand thereby driving the prices down. Also explorations in Alaska were recently shut down partly because of the push from the environmentalists and partly because there are other cheaper options available. This has made the companies rework their overall goals to overcome the ongoing slump. However since we are not aware of our peak oil capacity this situation can change very quickly based on any political maneuvers. This again brings a sense of capriciousness to the whole situation and would require a great amount of adaptability.

Lastly I would like to state that the unprecedented growth in information technology is also a significant factor in bringing about this unpredictability. The increase in awareness and fast distribution of information has given oil and gas companies a vulnerability that may be they were previously unaware of.


For these reasons in conclusion I would like to state that may be predictability and the ‘classical’ strategy should generally be used with caution and increased emphasis should be placed on adaptability.

Reference:
Reeves, M., Love, C., & Tillmanns, P. (2012). Your strategy needs a strategy.Harvard Business Review90(9), 76-83.

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