Saudi Aramco president and CEO Khalid A. Al-Falih told delegates to the Oxford Energy Forum last week that the global petroleum industry faces trying times as a confluence of factors — demographic, political, business, macroeconomic and operational, as well as public perceptions of the industry — presents significant challenges — and, possibly, tremendous opportunities.
Speaking to the forum, held at Oxford University in the UK and attended by many experts and decision makers, Al-Falih said fears that the world’s oil resources are about to be exhausted are baseless. Geological evidence, shows that the world has a plentiful endowment of oil and gas, with a vast quantity of known reserves yet to be tapped and additional resources still to be discovered.”
It is estimated that between six and eight trillion barrels of conventional oil and natural gas liquids and about seven trillion barrels of unconventional oil is in place worldwide. The ability to produce those resources hinges on a complex interplay of technology, economic, environmental and regulatory factors.
Challenges after Gulf of Mexico
Al-Falih also spoke about more serious challenges. He said there are negative public perceptions of the industry and doubts about its ability to supply energy responsibly and reliably. In some countries, national security, the environment and economic growth are being mixed together in an attempt to turn away from petroleum. He said the industry is in the headlines because of the Macondo well incident in the Gulf of Mexico.
Al-Falih addressed the Gulf of Mexico tragedy and its possible ramifications. He referred to the incident as a wakeup call and warned against complacency, saying that the lessons learnt must be taken to heart and transformed into meaningful action.
“It is likely that there will be tighter regulations on petroleum activities in many markets, with ramifications both for the way we do business and for the cost of industry activities,” he said. But in the longterm, “The world will continue to rely upon oil and gas for essentially all of the energy used for transportation and much of what fuels and feeds industry.”
“BP and the relevant US authorities will be … conducting in-depth investigations,” he said, “and I am sure there will be valuable lessons there for all of us to learn. But it would be a mistake to assume that … the rest of us are immune to such tragic incidents or that such a disaster could only involve just one particular set of companies and service providers. As with any such industrial incident, we will find that there were specific conditions and actions, human and mechanical, which lead to such accidents.”
Al-Falih said it was important for executives to lead and communicate with subordinates, especially with regard to operational safety. Executives cannot just delegate operational safety responsibilities to their subordinates without providing adequate supervision, he said. “Senior management must lead visibly and remain engaged with the issues and operations that, taken together, constitute what we call operational excellence.”
Open dialogue between executives and employees over operational safety is “an essential part of corporate leadership and an integral responsibility for senior management,” he said.
“If senior management primarily talks about the bottom line and financial performance,” he said, “then employees will look first and foremost at ways to cut or contain costs and juice profitability. In short, if as a leader you put pressure on people, either by design or through inadvertent signals, they will go to great lengths to fulfill what is implied by such signals — even if that means putting themselves or their colleagues at risk.”
Environmental issues
Al-Falih stressed the importance of serious dialogue between consumer nations and oil producing countries about preserving the environment. Some countries are taking unilateral steps to provide alternatives to oil and implement strict controls, he said, and that will only make it more difficult to develop long-term strategies for oil infrastructure and producing facilities.
“In my view,” he said, “the perspectives of all stakeholders have a place in the discussion — and that includes a well-articulated case for petroleum as a fundamental enabler of economic prosperity and social development. Of course, to be successful in that effort we need to address not only global concerns like greenhouse gas emissions, safety and security of supply, but also market-specific issues like taxes and import tariffs, and the wisdom of subsidies and other incentives for alternative energy sources.”
Investment in human resources
Al-Falih said the industry will face greater challenges in skill development. Ever more complex activities will require higher degrees of training, and keeping the work force motivated will require companies to renew their commitment to employees — guaranteeing the tools and training they need for the future — as well as to attract young, brilliant people to the oil industry.
“We need to make young people aware of the reality of the petroleum industry and the prospects it offers,” he said. “We also have to give more attention to the role advanced technology and R&D play in our operations, and to let young people know that a career in oil and gas can be personally as well as professionally rewarding.”
Future demand
“The industry — and particularly Saudi Aramco, with the role it plays in the market — cannot determine with any degree of certainty what future demand will look like,” he said, “but we are required to make multi-billion-dollar investment decisions now, given the long lead times involved for oil and gas projects.”
Al-Falih concluded by saying that “operational excellence, especially caring for the safety and health of employees and protecting our reliability as energy suppliers to the world, is an indispensable key to sustained success.”
