faculty focus
THE OIL & GAS INDUSTRY
stories from the field B y A ndrew I nkpen , M ichael H. M offett , and K annan R amaswamy , T hunderbird
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he world’s attention seems to be focused on reducing carbon emissions through renewable energy, electric cars, and the harnessing solar and wind power. The headlines might well be foretelling darker days ahead for the oil and gas industry but, in our opinion, the predicted rapid obsolescence of the oil and gas industry is premature and ignores a variety of other short to medium term challenges faced by the industry. How the industry responds to these challenges will in turn determine how the larger issues of renewable energy and climate change are addressed. The energy industry is one of the most complex and globally consequential industries. Within this industry, the oil and gas segment occupies a dominant position as the major source of the world’s energy. According to the American Petroleum Institute (API),
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this segment of the energy industry directly and indirectly accounts for 5.6% of U.S. labor employment, 6.7% of labor income, and 7.6% of value added in the U.S. economy1. Despite its prominence, much of what the general public knows about oil and gas is limited to discrete pockets of knowledge - the price of gasoline, the gyrations in the price of crude oil, the latest refinery accident or pipeline controversy. This fragmented and shallow understanding robs us of an integrated and comprehensive view of the industry and minimizes the immensity of the challenges in transitioning to a renewables future. While much has been written about how oil and gas firms ought to operate, there is little on how they actually do operate. How do they create strategies, manage multiple stakeholders, and develop complex projects in countries and regions across the
Andrew Inkpen, Ph.D.
globe, within an industry that constantly challenges received wisdom? We set out to examine these important questions with the objective of shifting away from the press headlines to develop a more nuanced understanding of the realities of the oil and gas business. We used an idiographic analysis approach that builds on in-depth case studies of companies and countries central to the industry. Building on extensive examinations of source documents, company reports, industry analyses, and expert opinion, we developed a series of case studies covering a wide spectrum of countries, owners, strategies, and challenges. These studies formed the basis for distilling answers to the questions that drove our study. Resulting from our analysis of both successful and unsuccessful business decisions in the industry, we identified four key themes that characterize the current state of the industry and its future prospects:
Michael H. Moffett, Ph.D.
Kannan Ramaswamy, Ph.D.
1) In broad terms, the oil and gas industry is quite similar to other industries where change, innovation, and disruption are central to long term success. Despite the relatively long arc of their success, even established oil and gas rivals are challenged by an emerging class of competitors who have the capital access and the willingness to question received wisdom. Many of the central tenets of the business ranging from costs and economics, access to resources, connectedness of markets, and product substitutability are being rewritten by the disrupters.
Impacts of the natural gas and oil industry on the U.S. economy in 2015. Prepared by PWC for the American Petroleum Institute. July 2017.
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winter 2018
