By Geoffrey Cann
At the dawn of a new year, it’s helpful to check in on the bigger trends affecting the global energy industry. Keep this post handy as you get into longer term planning (Part 2).
Steeple Chase Reboot
This week concludes a series I started last week on the trends to watch in 2023. In case you missed it, you can find the previous article here.
As a reminder, at the start of every year, I take a step back from the daily news feeds about energy to dwell instead on the many longer-stride trends that are impacting oil and gas.
There are many ways to frame such analysis, and the framework I’m using goes by the name STEEPLE. The letters form a mnemonic, which refers to Social, Technology, Economy, Environment, Politics, Legal, and Ethical. The mnemonic started life as PEST, then evolved into STEEP, PESTLE and STEEPLE by progressively adding additional categories. The previous article considered the first three categories, and this post will conclude with the remaining four.
I’m pretty sure that after you’ve digested the first article, you probably came up with additional trends that you’re interested in, and that’s good. You might also want to chase down the evidence to back up the trends, and that’s also good. But over to you for that task!
And always remember, I’m not predicting the oil and gas industry. If I knew how to do that, I would almost certainly not write it down and I’d be much richer than I am today. The point is that each of us, individually and as organizations, need to decide how to react to the trends, if at all.
The environmental trends are those that concern themselves with our natural world.
At times, the energy industry seems to be driven by a singular environmental factor—rising levels of atmospheric carbon concentration. However, there are many other worrisome trends to keep front of mind.
Water stresses are on the rise, and oil and gas consumes a lot of water. Oil and water don’t mix, making water particularly useful to move oil around (flooding), separate it from debris (oil sands separation) or change its viscosity through heat transfer (steam assisted gravity drainage). Fracking also relies on water. People respond to water stress by migrating. Governments respond by constraining oil and gas development.
Floods, droughts, heat domes, atmospheric rivers and damaging storm activity are seemingly more widespread, more frequent, and more intense, tied to rising oceanic temperatures. Hotter oceans all increase the stresses on oil and gas infrastructure, much of which is either on, in or beside tidal basins. Oil and gas investments help make that infrastructure more resilient.
As the planet becomes more crowded, energy infrastructure is frequently located in more challenging landscapes (harsh oceans for wind turbines, or mountain slopes for new pipelines). The costs of that infrastructure, to deal with environmental concerns, rises and timelines to deploy lengthen. Energy companies need to work more closely with traditional and current landowners, sharing ownership and control, to access these corridors.
Gone are the days where environmental conditions could be monitored only occasionally. Real time monitoring of environmental exposures (water, air, emissions, noise, pollution), capture of reliable data about environmental impacts (on the land, water bodies, flora and fauna), and transparent environmental reporting becomes the normative operating model for successful energy companies.
For more people, more of the time, environmental impacts are more real, rather than some distant news event. Young people are making the environment their cause célèbre, a movement that will last a generation, and diverts young people from promising careers in energy at a time of transition.
Political trends are almost by definition country specific, but there are a few biggish ones that factor into energy calculations.
The first trend is aggressive energy geopolitics. Russia has demonstrated how an autocratic political regime over time can be tempted to use a carefully constructed energy market monopoly to bend market dependents to its will. Energy importers will be careful not to lock into such dependencies in the future, and the trend will clearly be to diversify energy supply or move to self sufficiency in energy.
Political actors are now more adept at imposing sanctions on energy supplies and suppliers, and such sanctions are spreading, even if they appear at times ineffectual. It’s easy politically. Energy companies that engage in cross border trade will have to set up their evidence trail for energy provenance and overall transparency.
Electors in some western countries are embracing more green political leadership, from the Green Party in Germany, the Labour Party in Australia, the Liberal Party in Canada, and the US federal government via the IRA. Energy companies may be out in the cold for a long time.
As traditional media has given way to social media around the world, the resulting fragmentation has fostered high levels of political polarisation in open markets like the US. Since free speech advocates vigorously oppose any restrictions on media, this polarisation is likely to continue.
Autocrats have perfected the ability to control domestic access to independent media in many countries, including Russia and China. Even as technology evolves, and as media transforms, these markets are likely to maintain their tight control on media. Other autocratic nations may well follow.
The next few years look poised for a global fracturing between major opposing political systems. On the one side are the WILDs—the Western Inveterate Liberal Democracies (free elections, an independent press, multiple parties, an independent judiciary, a politically inert military). On the other are the DINOs—Democracies In Name Only, that feature single party rule, tightly controlled media, an economically and politically active military, and state controlled judiciary. Since energy is a global product, successful companies will figure out how to navigate these two dynamics.
The legal environment for energy is not static, but it doesn’t change quickly either. Nevertheless, I keep an eye on a few important trends.
Activists have been successful in weaponizing legal systems in western economies to tackle the energy industry. Approval cycles for energy developments (and even housing for veterans) in the western world continue to slow down and are now structurally out of step with both the rising demand for energy and the speed society demands to deal with climate effects.
A related use of the legal system is the trend towards suing the energy industry for society’s dependency on energy products.
Legal systems, courts, document filings, hearings and trials are all undergoing radical digitally enabled transformation to accelerate judgements and cope with pandemic-related pressures. The world of corporate counsel for oil and gas will look very different in the future. Such changes also enable the effectiveness of the industry’s opponents.
Innovations like robotics and automation (which clouds accountability), blockchain-based smart contracts (which legally are neither smart nor contracts), carbon credits (which suffer from high levels of fraud) will put some pressure on legal systems to respond. Digital innovations look set to outpace changes in the legal systems.
Extraterritorial legal activity is on the rise. Hong Kong’s security law allows it to prosecute anyone anywhere, including non citizens residing overseas, who it deems to have violated the security law. This doesn’t bode well should such laws be aimed at energy company employees.
It has long been recognized that there is an ethical dilemma at the very heart of the industry—the production and consumption of petroleum delivers great benefits for society but at a serious environmental and social cost. Halting the industry will quickly starve us and continuing the industry will slowly cook us.
But there are other ethical trends to consider.
Data privacy rules protect the interests of consumers and employees, and only go in one direction—more restrictions, greater protection, tougher penalties—in our more digital era.
The potential for long-stride digital transformations such as robotics, automation and artificial intelligence to displace tedious, dangerous and repetitive work while achieving cost, productivity and quality gains may come at the cost of traditional job destruction (while at the same time creating new jobs). Timing is a problem as society faces economic recessions, unions protect jobs, and qualified labour pools shrink.
Digital innovations enable the collection and use of vast amounts of biometric data to enable consumer convenience, but fingerprint and facial recognition tools equally enable morally repugnant uses. Companies must be vigilant against the misuse of such tools.
Use STEEPLE to drive your own trends analysis as part of scenario planning. It’s really useful.
Check out my latest book, ‘Carbon, Capital, and the Cloud: A Playbook for Digital Oil and Gas’, available on Amazon and other on-line bookshops.
You might also like my first book, Bits, Bytes, and Barrels: The Digital Transformation of Oil and Gas’, also available on Amazon.
Take Digital Oil and Gas, the one-day on-line digital oil and gas awareness course on Udemy.
Take the one-hour Digital for the Front Line Worker in Oil and Gas, on Udemy.