Oil Refinery Dusk

A lot of time and money is spent on trying to predict the future. There are organizations built around it, millions of dollars spent on it and alas – as those in the UK and US experienced first-hand in the political landscape of 2016 – they don’t really get it right (if I’m going there, I might as well say they got it downright wrong.) Capitalism dictates that supply is driven by demand and vice versa, meaning that the person who can predict what’s coming down the line has landed on an infinite gold mine. Companies will pay big bucks for advisors to do what they do best and advise on what to expect in coming years – if Blockbuster knew that one day internet streaming of films would become as big as it has, I’m pretty sure they’d have moved much faster. Staying ahead of the game is one of the cornerstones of successful capitalist participants, and one of the biggest players in the capitalist world is the Oil industry; the Organization of the Petroleum Exporting Countries (OPEC), nations such as Saudi Arabia, Iran, Algeria and Qatar, earned over $982BN in net oil exports in 2013 alone. That figure doesn’t even include revenues from the United States, Europe or Far East Asia.

Oil peak predictions have come and gone whilst prices continue to fluctuate

Airport Traffic JamYear on year there are predictions of when the world will run out of oil – it’s certainly a worry on a planet that massively depends on it for transport,
machinery, heating, lighting and more. Check out this timeline of ‘oil peak’ dates that have been called in the past (and that have come and gone without apocalypse.) Now, governments and oil and gas majors are funding research into sustainable alternatives as we continue down the path of preparation. Interestingly, what we’ve seen in recent years is so much supply from OPEC – in a bid to defend their market share against the US – that the price of oil fell from $113 per barrel in 2013 to just $32 per barrel in 2016 (all this as the industry was still recovering from the significant drop in 2008, the shock of which was heightened by experts’ claims just months before that oil was about to reach $200 per barrel. They were only around $150/barrel off the mark.) Not surprisingly, this has had major ramifications for oil and gas companies throughout the world – globally, over 350,000 workers have lost their job since the dip in 2014. Prices are picking up three years later, but only after OPEC and Russia agreed to curb production rates as the negative effects of cheap oil reached the economies of member countries. The industry is recovering, but a barrel of oil will still only set you back $50. We might, in fact, be defying all oil-Armageddon prognoses to date, and instead be experiencing peak demand long before peak supply. Whoever would have thunk it?

Profits and the path to redemption

Combine subdued production with the oil-and-gas-friendly rhetoric from the new President Trump Administration in the White House, and it’s plausible that the industry could be on the path to redemption. Trump has already, although controversially, signed executive orders on advancing the Keystone XL and Dakota Access pipelines, and the US looks set to be a net exporter of oil by 2050 (again with those predictions.) As regulations are cut by the Trump Administration, profits will likely start to climb – more profit potentially means more investment in EHS, so this is good news, right? Well, not without the worry that the very change that leads to increased profits also wipes out the need for EHS spending: deregulation. The Environmental Protection Agency (EPA) in the US has already taken a massive hit to its funding in 2017. It is to be hoped that executives are committed to EHS morally, and not just in the compliance sense. Do you dare predict what will happen?

On the other side of the pond, there has been a long overdue win for the UK oil and gas industry. The recent discovery of an untapped offshore oil field off the West coast of Scotland looks set to create 37,000 jobs in the sector over the next two years. This is against a backdrop of mergers and acquisitions, after the North Sea oil industry was hit especially hard by the fall in prices in 2014 resulting in the loss of over a quarter of oil and gas jobs (in numbers, that’s over 110,000 livelihoods.) However, producing oil in the UK Continental Shelf and North Sea is expensive: the oil fields are mature, and equipment is ageing. The company that discovered the new oil field, Hurricane Energy, reports that it will require $400M in order to develop the project of accessing the oil in the Greater Lancaster Area.

Finding the role of EHS in an ever-changing world

With boosts to the industry such as Trump’s policies and small wins like the Scottish oil find, the hope is that the results of an upturn will have a positive effect on EHS. Actually, despite thousands of job losses and cost-cutting, the oil and gas industry remains the biggest spender on EHS and Sustainability software, accounting for $342M worth of fees in 2016 or 37% of the entire global market according to Verdantix. This may come as a surprise when other studies reveal that only 10% of oil and gas companies expect rises to EHS budgets in 2017, whilst 19% of DNV GL survey respondents say cost-cutting in the industry is raising health and safety risk at their organizations. The impact of cuts goes much deeper than lost employees – Gary Childress, VP of EHS at Oil States Energy Services in Houston, TX and quoted in Safety and Health Magazine, says that it’s more than just worrying about your job:

“There is an expansion of your role because of cutbacks. There are pressures from the customer. There are pressures from the company. There are pressures that you feel from home because the family is also watching the same news that you’re watching. And then there [might be] a freezing of pay, or not getting recognized as you would in an upturn. A lot of times, companies will discontinue the non-essential training or development that grows your career. It’s all of the traditional things that you would think of, but it goes much further than that.”

Unfortunately, the man who predicted (that word keeps coming up for some strange reason!) the 2014 crash is predicting another later in 2017. Whether this is ‘future babble’ or not, expectations of downturns in the oil and gas industry will have one of two outcomes for EHS; it will either take a backseat, losing funding whilst witnessing decreased morale in the face of redundancies and cuts, or organizations can maintain its importance – avoiding the worsening of an already bad situation. As the Chinese NOC’s deputyDG, Ye Hua Huang, states,

“We all need to be careful about safety all the time – no matter what the oil price is. It can never be compromised.”

Can we look forward by looking back?

Crude Oil Prices 70 Year Historical Chart
Figure 1: Crude Oil Prices 70 Year Historical Chart

On the flip side, are you familiar with the saying “What Goes Down, Must Come Up”? Perhaps not, but you probably do know its evil twin. Well, with every dip the oil and gas industry has ever experienced, there has come a turning point (see Figure 1, Crude Oil Prices 70 Year Historical Chart.) The price of oil bounces back, profits gain pace and there’s the on-boarding of thousands of workers to support demand. Take the fact that the oil and gas sector not only still exists but is the third most profitable industry in the world as evidence that challenges have been overcome ever since its emergence in the early 1900s. As for where we are now, predictions for 2017 are of a wide range; I already mentioned that the man behind the 2014 crash prediction is of a similar tone this year, but this is almost completely in contrast to the rhetoric of OPEC and Russia (who are so far sticking to promises to curb oil production until prices stabilize – a wise move.) It is further encouraging that whilst prices find a new equilibrium, big oil and gas majors are funding research into sustainable alternatives such as the new PREP C20, a “powerful and sophisticated solution designed to fractionate large amounts of polymer, in an entirely automatic process”. It might not so much be when the upturn hits, but when the significant shift starts to take effect.

Up? Down? Whatever happens, we know for sure that the world is not stagnant. A number of emerging industries are set to effect economies, workplaces and everyday life on a global scale – oil and gas is an industry that will more than notice the rise of artificial intelligence and automation. The description of PREP C20 says it all: “an entirely automatic process.” EHS in oil and gas will change dramatically as less human intervention is required and exposure to human error is reduced. The laws of exponential growth dictate that the more we discover, the faster we discover – changes to how the industry goes about its daily business might be about to get a whole lot more disruptive than the fluctuating price of oil has been.

Fluctuating oil prices as a clue to the bigger picture

Unfortunately, I have not landed on that gold mine. I don’t know what’s going to happen to the price of oil or its effects on EHS, and I don’t know when my colleague Steve will be replaced with a robot and myself its robot friend. Predictions can be extremely helpful for planning, and nowhere is that truer than in the EHS profession: leading indicators and the availability of ever-more data are helping organizations identify trends and avoid similar dangerous situations in the future. The company I work for provides software for that very purpose. But what we can’t forget is that all algorithm outputs, all predictions are contingent (as you already very well know, I’m certain.) For anyone interested in why I’m skeptical about predictions, I highly recommend Dan Gardner’s Future Babble: Why Expert Predictions Fail and Why We Believe Them Anyway. Take it from the Novel prize-winning physicist Niels Bohr,

"It's hard to make predictions, especially about the future."

In a world where the speed of change is increasing, only businesses that ride the innovation tide are likely to succeed... and it won’t be easy. The EHS professional will be instrumental in this era. Expect a heck of a lot of time on that Management of Change software - but equipment upgrades won't be the only change you'll have to manage. Worker attitudes will vary, workforces will be streamlined, new processes will be required and you’ll still be arguing the case of EHS investment to the board (but maybe they’ll all be computers and will be able to work it out for themselves that continued EHS encouragement is crucial in any high-risk company’s success. Who knows?)

"You know nothing, Jon Snow"Then again, that is a prediction. Despite knowing that “it’s hard to make predictions, especially about the future,” what are yours for the coming challenges in oil and gas? Is speed of change on your agenda as an EHS professional? Surely, the only thing we know for sure is that nothing is for sure – and the track record of the price of oil vs. the track record of expert predictions on the price of oil seems like a good indicator of that to me. The overarching challenge for you is making EHS excellence the constant come hell, high water, hostile markets… or complete industry overhaul.

Also published by EHSToday.com

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