Discuss about The oil industry is facing major troubles and this industry cannot able to persuade the investors also to invest in this energy.
This research paper is primarily concerned with the Oil Industry; Big Oil is suffering due to the explosion of the Shale Oil in the USA. New companies are supporting Shale Oil industry, as it has very low impact on the Oil industry. On the other hand, investors are also investing in the non-conventional methods of producing Oil. The word Global warming has become the biggest concern of today’s world. Ozone Depletion and Acid Rain are occurring due to the Global Warming. Continuous extraction of the Oil, Gas and Coal is harmful to the environment and pollute nature. These are all known as the Fossil Fuel, which is non-renewable. The addiction towards the renewable energy is not surprising; implementation cost of the renewable sources is high enough, but these sources are not affecting the environment (Cayley-Daoust and Girard, 2014). Due to the Shale explosion of the Oil industry, Big Oil is suffering from heavy loss. This easy paper is depicting the challenges of the Big Oil, the strategic decision of the Big Oil to sustain the market position and what changes are occurred to retain the market position. Next, it is describing OPEC’s decision to regain the market, how the decision has not become successful and become the reason behind the oversupply for 2016. This paper is also worried about three major challenges that Oil industry are facing. Recommendation section facilitates the Big Oil companies to sustain their market position in competitive global market.
This paper is excavating the reason behind the challenges and threats for the organization. Slowing production growth is the major reason behind this. The combination of legacy decline from Maturing wells and the paucity of new supply sources, Big Oil companies are seeing dramatic changes in the production over the past few years (Langwith, 2014). By Haerens (2013), Big Oil is considered as the seven or eight largest Oil production companies in the world, these companies are also known as the “supermajors.” These companies are owned by governments. Haugen (2014) depicted that among Big Oil Companies, ExxonMobil declared that the production in the second-quarter of 2014 is ruined by 5.7%. Due to the maximum growth rate of 3%, most of the Big Oil companies have lowered the production. Second big threat or challenge for the Big Oil companies is the high cost of production. Intensive drilling has exhausted the reserve of “easy oil” so the Big Oil companies have to venture in the rural and remote territories in search of the hydrocarbons. The third problem, perhaps the major one is environmental changes. The rise of the temperature has become the prime concern for the oil companies and to avoid the catastrophic damage in the environment, oil industries have to take major steps. To achieve these goals, people have to curtail the use of the non-renewable energies. Musser (2014) concluded that ample amount of saving “easy oil” by the Big Oil companies cannot be used. Bog Oil companies are known for their high market of profit but recently, due to development cost, reduction in production and several policies related to the environment has bright the Big Oil in bottom Line.
Source: https://www.fool.com/investing/general/2013/12/31/big-challenges-facing-big-oil.aspx [Accessed 21 Mar. 2016].
From the above graph, it can be considered that due to the recession, the demand growth of Oil industry has decreased.
Source: https://www.fool.com/investing/general/2013/12/31/big-challenges-facing-big-oil.aspx [Accessed 21 Mar. 2016].
The above chart is depicting the severe income declination in Big Oil companies. As the consumption of the alternative fuel is increasing so that consumption of Oil in the developed countries will fall. On the other hand, this serious fall can raise top-line pressure on the oil companies. Slowly the reign of Big Oil is vanishing; the companies are losing revenues and stocks.
Apart from this government pressure on the oil companies, lack of investors and lower safety standard is also the cause of the challenges for Big Oil companies.
Healey (2015) opined that Big Oil companies should adopt the Self-Liquidation Strategy to sustain the market growth in the global competitive Oil. Low price is a reason for the market failure. To maintain the production level, OPEC has decided to maintain the production level, and this becomes the cause of the 700,000 bbl oversupplied for the year 2016. Big Oil companies now decided to maintain the balance of the demand and supply curve. On the contrary, Jakab (2015) stated that from the short-term analysis, OPEC thought that the oil consumption would increase and from the past analysis it also derived that the record of renewable energy had been suffering for few decades. This Statistical data becomes vague, and now OPEC is suffering for selling of Reserve oil. May the price of the Oil is higher than the Natural gas still the packaging and delivering oil is easier than gas. Production of Natural Gas depends on the infrastructure. Big oil can use the Oil for electricity production also when the price of the oil declines. To retain the market, Big Oil companies are thinking innovatively, now they are not investing money only the biggest project, rather they are investing money on the small projects also. Johnson (2016) said that the Short-term invest plans have become the beneficiary for the oil companies. The companies are developing some world’s largest Liquefied Natural Gas Projects like Gordon Plants and Wheatstone Plants by BP. Most of the Big Oil companies are shifting their choice towards the Deepwater Projects. BP, on the other hand, is also focusing on the West Nile Delta Gas project.
According to Juhasz (2008) even in the Paris Summit, Oil bosses have to take pledges to cut down the greenhouse gas emissions. If Oil industry can adopt significant moves and limit the Global Warming then automatically demand for Fossil Fuel will be grown. ExxonMobil still believes that even in 2040, three-quarters energy market will be dominated by Fossils Fuel. Major changes can be brought if Big Oil companies will maintain the all governmental policies and produce Fossil fuel without affecting the environment. After adopting Self-Liquidation Strategy, the companies will be more profitable. If the “supermajors” will able to give up some bad habits, then oil majors become the biggest beneficiaries of the price slump.
This paper is exhuming three major areas, which are becoming increasingly challenging for the oil industries. On the other hand, Langwith (2014) says that Oil prices below $50/bbl can impose spell trouble on the CANADA and US. The Shale and Tar-sand producers will be suffered; besides, oil exporters will also be suffered due to such low price. World biggest Oil companies or Big Oil companies are suffering as they could not generate sufficient amount of cash to overcome their dividends and spending, billions of dollars they are spending on the oil project but the price of per barrel seems to have no guarantee. Reiss (2013) depicted that Spending on the new projects, dividends, and the share buy backs are the Big Oil Companies outdo the Cash Flow around $20 billion dollars in the first half of the 2015. By the Wall Street Journal Analysis, analysts are saying that the Big Oil companies should reveal their shortfalls on the weekly basis. Due to this Cash Crunch, Big Oil is facing cloudy future. Recently “supermajors” are spending more than $30 billion in 2015, the companies have to lay off the workers and delay the projects. More cuts are expected from “supermajors.”
Source:https://www.wsj.com/articles/cash-crunch-clouds-future-for-oil-firms-1445816429 [Accessed 21 Mar. 2016].
From the above figure, it can be concluded that within the gap of ten years the Big Oils companies are suffering heavily. Lower-for-longer oil price scenario can be depicted from here. The oil majors are having problems related to cover their budget.
By Roberts (2014), in November 2014, OPEC has decided to regain the market share in the Oil industry, so they keep on the production of Oil. However, the price of Crude or Fossil Fuel has fallen. Also the meeting in 2015, OPEC has said that they are going to maintain the production level. The result is shocking, 700,000 barrel per day oversupplied for 2016. The world of oil industry due to this drastic decision and the price can be fallen in future more drastically. By the Energy Agency, the weak demand growth and increased supply will ensure that there will be certainly an overabundance of oil in 2016. This is the major threat to the oil companies. From the statistical data, it has been measured that this is the third year when the oil industry is suffering from over-supply. Robinson (2014) has drawn up the attention that Recession is at the behind of the slower demand, as the price of the natural gas is lower than the crude oil so at the time of recession people are shifting their choice towards the natural gas producers.
By (Yao et al. 2015) investors are asking the Fossil Fuels companies that what changes they are adopting to get into Low-carbon global market. Even increased investment in the sources of alternative energy, most of the strategies is saying that fossil fuel will be count for 50% global energy demand in 2040. Despite of this factor, this market has potentiality to reduce the emission of the CFC. Burning natural gas produces half Carbon dioxide in comparison with the coal. Big Oil companies should focus on the natural gas more than coal. Nevertheless, Wimmer (2013) stated that there is the debate going on regarding this particular event, whether the natural gas capacity to meet the industrial energy demand or not. In that case, industries have to depend on the Fossil Fuels. Even the Global Warming has concentrated on the Methane and Carbon dioxide, but it also has a significant impact on the natural gas’s low carbon quality. More advanced thinking is needed to mitigate the reason for the Global warming. The future focus should not be only on the emission of Carbon dioxide but also focus more on the emission of methane. Sustainable Gas Institute has published that not only in the oil industry; the whole supply chain of the world should be rectified. The oil industry has the opportunity to diverse their business.
According to the UN Climate change Conference in the year 2015, the environment is affecting due to the Global warming. Also, renewable energy like crude Oil is one of them. 196 parties have attained this summit, and they are all focusing on the reduction of the climate change. All the parties have signed an agreement that they will concentrate on the world’s biggest issue-Global warming. It has been estimated that temperature will be increased up to 2.7 degree Celsius by 2100. Now the countries have to think about the use of renewable energies. Big Oil companies are trying to switch their choices towards green initiatives.
Recommendation
The oil industry should be abided by the Industry recommendation Practices (IRP’s) for Petroleum. It is so far considered as the best practice and guideline for the Big Oil companies. Big Oil companies should comply by the governmental policies and legislation to sustain the environment. Due to Fossil fuel, the energy industry is producing more heat in comparison with the natural gas. On the other hand, the market is also drowning because of the demand and supply of the oil industry. Excess production has become the prime reason for the low price of the oil industry.
Another recommendation for the Oil Industry is to switch into green energies; Shell is one of the major companies, which are adopting green energy. Due to the volatility, oil and gas majors like Exxon BP cannot adopt green initiation. But now companies have understood that “Going Green” is one of the effective risk management strategies. The investment in the clean energy now reduces in comparison with the previous years. According to the current market scenario, major Big Oil companies should invest in the production of the green energy.
Conclusion
The oil industry is facing major troubles and this industry cannot able to persuade the investors also to invest in this energy. Though there is a loophole, with which the industries are trying to find out potential investors (No pipelines! No tankers! 2015). After the conference in Paris, governing bodies of the countries have to take a major step to make people use the renewable energies as the main energy because it emits low carbon.
References
Cayley-Daoust, D. and Girard, R. (2012). Big oil’s oily grasp. Ottawa, Ont.: Polaris Institute.
Haerens, M. (2013). Oil. Farmington Hills, Mich.: Greenhaven Press/Gale, Cengage Learning.
Haugen, D. and Musser, S. (2014). Renewable energy. Detroit: Greenhaven Press.
Healey, J. (2015). Renewable energy. Thirroul, N.S.W.: Spinney Press.
Hoium, T. (2016). Big Challenges Facing Big Oil. [online] Fool.com. Available at: https://www.fool.com/investing/general/2013/12/31/big-challenges-facing-big-oil.aspx [Accessed 21 Mar. 2016].
Jakab, C. (2015). Renewable energy. Mankato, Minn.: Smart Apple Media.
Johnson, R. (2016). The aromatherapy & essential oil handbook. [Michael Anderson]: [publisher not identified].
Juhasz, A. (2013). The tyranny of oil. New York, NY: William Morrow.
Langwith, J. (2014). Renewable energy. Detroit: Greenhaven Press.
No pipelines! No tankers!. (2015). Ottawa, Ont.: Council of Canadians.
Reiss, B. (2013). The Eskimo and the Oil man. New York: Business Plus.
Roberts, P. (2014). The end of oil. Boston: Houghton Mifflin.
Robinson, M. (2014). Marketing big oil.
Scheck, S. (2016). Cash Crunch Clouds Future for Oil Firms. [online] WSJ. Available at: https://www.wsj.com/articles/cash-crunch-clouds-future-for-oil-firms-1445816429 [Accessed 21 Mar. 2016].
Wimmer, E, and Muni, A. (2013). Motoring the future. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.
Yao, Y., Zhao, Y., Li, J. and Sun, J. (2015). Research on changes in international big oil companies’ R&D input: the impacts of international oil prices. International Journal of Global Energy Issues, 38(1/2/3), p.82.
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