There is nothing that has been more crucial to the development of the modern age than the oil industry. Its importance led to the economic rise of many countries in the past, and to this day keeps much of the world functioning as the leading source of global energy. The world’s reliance on oil cannot be overstated.

Yet, the global oil industry has found itself in a precarious situation. As more developing nations catch up to the Western world, demand for oil continues to grow exponentially. Easy access to crude oil supply, however, is rapidly declining, even as technological advancement continues to lower the costs of producing fuel from other sources, such as natural gas, geothermal, and renewables. At the same time, shifting public opinions on the adverse environmental effects of oil on the environment are pushing policy makers, investors, and scientists to reconsider the central role oil plays in modern life, putting into question the very future of the industry.

While it is more than likely that the world may still depend on oil for decades to come, the current practices of the industry must change if its long-term sustainability is to be ensured.

The International Energy Agency (IEA) in its World Energy Outlook 2018 (WEO 2018) found that while the geography of energy consumption is shifting towards Asia, oil markets are “entering a period of renewed uncertainty and volatility, including a possible supply gap in the early 2020s.”

“The analysis shows oil consumption growing in the coming decades, due to rising petrochemicals, trucking and aviation demand. But meeting this growth in the near term means that approvals of conventional oil projects need to double from their current low levels,” findings from the WEO 2018 said.

“Without such a pickup in investment, US shale production, which has already been expanding at record pace, would have to add more than 10 million barrels a day from today to 2025, the equivalent of adding another Russia to global supply in seven years — which would be a historically unprecedented feat.”

The task is further complicated by emerging policies addressing climate change. In its New Policies Scenario, the IEA stated that under a scenario where fossil fuel use is restricted to limit global warming to 2°C, oil use would be significantly more limited. Under the IEA’s 450 Scenario, which is consistent with a 50% probability for less than 2°C global warming, global oil demand may reach a temporary peak at 93.7 million barrels per day in 2020 but thereafter fall to 74.1 million barrels per day by 2040.

A white paper by the Global Agenda Council on the Future of Oil & Gas, published by the World Economic Forum, predicted that as oil companies realize the inevitability of a short-term spike in demand growth followed by a sharp decline, there will be a rush in the investment, development, and production of oil in the near future.

“Only parties that have no choice (lack of finance, geopolitical barriers, inability to organize investment due to bureaucratic failures, etc.) will be left out of the calculation whether to consider the remaining “carbon budget” for global oil production in deciding how much, and when, to invest to monetize existing reserve holdings,” the white paper said.

“Companies will also have to consider when it no longer makes sense to continue exploration for new resources in high-cost, long lead-time environments as countries with large, low-cost reserves more aggressively pursue a market share-oriented strategy for their remaining oil and gas assets.”

In the short term, growth in the oil industry must revolve around developing a value proposition that takes into account the fact that overall production growth may no longer be possible. This involves cutting costs, increasing efficiency, cooperation within the industry, and possible consolidation. A technological revolution, driven by significantly higher levels of artificial intelligence, automation, remote operation, and management, could be under way.

Long term, however, Big Oil must face graver concerns than supply and demand. The oil industry consistently ranks among the least trusted industries in the world due to persistent controversies of corruption and misconduct. Social, geopolitical, and environmental concerns, from climate change to the destructive nature of oil exploration and development, further aggravate matters, making communities increasingly more opposed to the industry’s expansion and policy-makers more likely to impose harsher regulations.

As the reputation of the entire industry gets tainted by the actions of its worst ranks, there is a need for self-regulation and a good institutional framework that recognizes and rewards transparency, stewardship, and improved performance across the board. At the same time, long-term sustainability demands that the oil industry seek a transition to renewable energy while the demand for oil remains strong.

“Eventually, players who remain competitive in the oil and gas industry will have to consider whether it can be more profitable to shareholders to develop profitable, low-carbon sources of energy as supplements and ultimately replacements for oil and gas revenue sources, especially to maintain market share in the electricity sector,” the Global Agenda Council on the Future of Oil & Gas wrote.

“This will require a change in the oil and gas industry investors’ mind-set. To develop this second leg of the oil and gas industry’s activities, the industry may find new opportunities by addressing the technological challenges associated with the different parts of the renewable space, as well as how to develop efficient combinations of large-scale energy storage and transport solutions in a world with a lot of variable renewable electricity.” — Bjorn Biel M. Beltran