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Special from The World Economic Forum

Since the First Industrial Revolution, oil and gas have played a pivotal role in economic transformation and mobility. But now, with the prospects that major economies like the United States, China and European nations will try to shift away from oil, producers are coming to realize that their oil reserves under the ground – sometimes referred to as “black gold” – could become less valuable in the future than they are today.

 

Of the four scenarios for the future of the industry outlined in a new set of whitepapers from the Global Agenda on the Future of Oil and Gas, three of them envisage this type of world. Factors such as technological advancements, the falling price of batteries that power electric vehicles, and a post-COP21 push for cleaner energy could even drive oil use below 80 million barrels a day by 2040 – 15% lower than today.

     Price of batteries and demand for electric vehicles

 

We’re already feeling the effect

So what would a future of falling demand mean for the oil and gas industry?

 

Uncertainty about whether oil demand will continue to grow is already impacting the strategies of oil and gas firms. Through the 2000s and up until last year, the Organization of Petroleum Exporting Countries (OPEC), whose policies influence global oil supply and prices, took a revenues-oriented strategy, believing that scarce oil would be more valuable under the ground than out in the market, as global demand rose exponentially over time. Oil companies, too, responded to this world view by pursuing a business model that maximized adding as many reserves as possible to balance sheets and warehousing expensive assets.

 

Now, with new trends discussed in a new whitepaper, producers are coming to realize that oil under the ground might soon be less valuable than oil produced and sold in the coming years. This dramatic shift in expectations is changing the operating environment for the future of oil and gas.

 

A post-oil world: not all doom and gloom

 

Countries with large, low-cost reserves, such as Saudi Arabia, are rethinking strategies and will have to think twice about delaying production or development of reserves, in case they are unable to monetize those reserves over the long run. Saudi Arabia, for example, has recently announced that it is creating a $2 trillion mega-sovereign wealth fund, funded by sales of current petroleum industry assets, to prepare itself for an age when oil no longer dominates the global economy.

 

Declining revenues that could be reaped from exploitation of remaining oil reserves would adversely affect national revenues in many countries that have relied on oil as a major economic mainstay. Those countries will face pressing requirements for economic reform, with the risk of sovereign financial defaults rising.

 

But for the majority of the world’s population, structural transformations related to the future outlook for oil and gas offers an opportunity. If the global economy becomes less oil intensive, vulnerability to supply dislocations and price shocks that have plagued financial markets for decades will fade, with possible positive geopolitical implications. Moreover, many countries have reeled under the pressures of fuel subsidies to growing populations. According to the IMF, fuel subsidies cost $5.3 trillion in 2015 – around 6.5% of global GDP. Lower oil prices and larger range of alternative fuel choices would reverse this burden and lay the groundwork for shallower swings in prices for any one commodity.

 

    Top 10 energy subsidisers

Image: IMF

Staying competitive in an industry under change

 

Eventually, players who remain competitive in the oil and gas industry will have to consider whether it can be more profitable to shareholders to develop profitable low-carbon sources of energy as supplement and ultimately replacements for oil and gas revenue sources, especially to maintain market share in the electricity sector.

 

This will require a change in the oil and gas industry investors’ mindset. To develop this flexible, supplemental leg to traditional oil and gas activities, the oil and gas industry may find new opportunities by addressing the technological challenges associated with the different parts of the renewable energy space, as well as how one can develop efficient combinations of large-scale energy storage and transportation solutions in a world with a lot of variable renewable electricity.

 

Industry players can benefit from partnerships for flex-fuel technologies to ease infrastructure transitions and improve their resiliency to carbon pricing by achieving carbon efficiency for end-use energy through collaborations with vehicle manufacturers and mobility firms. Such responses will enhance the industry’s attractiveness with customers and investors, and most importantly, will promote a smoother long-term energy transition.

 

The three whitepapers are available here.

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*** From the World Economic Forum (WEF)

Five videos to watch on International Women’s Day

As we celebrate International Women’s Day on 8 March, here are five videos that highlight the struggle for gender parity.

I. The Global Gender Gap Report

The Global Gender Gap Index ranks over 140 economies according to how well they are leveraging their female talent pool, based on economic, educational, health-based and political indicators. With a decade of data, the 2015 edition of the Global Gender Gap Report– first published in 2006 – reveals patterns of change around the world.

II. Davos 2016 – Progress Towards Parity

At the Annual Meeting 2016 in Davos, an all-star panel gathered to discuss the challenges facing the journey towards gender parity. What are the opportunities to achieve progress towards parity as the demand on workforces and societies rapidly shift?

Panelists:
· Melinda Gates, Co-Chair, Bill & Melinda Gates Foundation, USA.
· Jonas Prising, Chairman and Chief Executive Officer, ManpowerGroup, USA.
· Sheryl Sandberg, Chief Operating Officer and Member of the Board, Facebook, USA.
· Justin Trudeau, Prime Minister of Canada.
· Zhang Xin, Chief Executive Officer and Co-Founder, SOHO China, People’s Republic of China.

III. China 2015 – Parity Equals Performance

Moderated by Joe Palca, Science Correspondent at NPR, this session held at the Annual Meeting of the New Champions 2015 in Dalian, People’s Republic of China, addresses the gender gap in science and technology. Are companies missing out on female-led innovation in the digital economy?

Panelists include:
– Masako Egawa, Professor, Hitotsubashi University, Japan; Global Agenda Council on Japan
– Maria Pinelli, Global Vice-Chair, Strategic Growth Markets, EY, United Kingdom
– Jun Qin, Chairman, Tsinghua Holding Technological Innovation Co., People’s Republic of China; Young Global Leader
– Nina Tandon, President and Chief Executive Officer, EpiBone, USA

IV. Emma Watson

UN Women Goodwill Ambassador, Emma Watson, delivered a stirring speech encouraging world and corporate leaders to take action for gender equality during the kickoff of a HeForShe programme launch during the World Economic Forum Annual Meeting in Davos on January 23rd, 2015.

V. Davos 2016: The Gender Impact on the Fourth Industrial Revolution

This issue briefing examined the degree and breadth of gender gaps across key industries and possible remedies to consider for each.
Speakers: – Mara Swan, Executive Vice-President, Global Strategy and Talent, ManpowerGroup, USA. – Theresa Whitmarsh, Executive Director, Washington State Investment Board, USA. – Saadia Zahidi, Head of Employment and Gender Initiatives, Member of the Executive Committee, World Economic Forum.

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*** Author: Professor Klaus Schwab is the Founder and Executive Chairman of the World Economic Forum.

It is time to stop looking backwards. In the years that followed the 2008 financial crisis, we spent a lot of time looking for ways to get back to the days of fast economic expansion. We were living in what I call a “post-crisis world”, certain that the challenges we faced were temporary blips in the system, hopeful that things would soon go back to the way they had been.

But now it has become clear that we have entered a new era – we are living in the “post-post crisis” world. What does this mean?

It means that almost everything we once knew is changing. For the foreseeable future, we will have to get used to slower growth rates. In the new world, it is not the big fish which eats the small fish, it’s the fast fish which eats the slow fish.

One of the defining features of this new era is the rapid pace of technological change. It is so fast that people are even referring to it as a technological revolution. This revolution is unlike any previous one in history, and it will affect us all in ways we cannot even begin to imagine.

A different kind of revolution

The first thing that sets this revolution apart from others is how disruptive it is. In the past we had revolutions – perhaps they would be better described as evolutions – that came at a relatively slow pace, like long waves in the ocean. The impact of the first Industrial Revolution, which began in Britain in the 1780s did not fully begin to be felt until the 1830s and 1840s. Today technological change happens like a tsunami. You see small signs at the shore, and suddenly the wave sweeps in.Surfer at Peahi Bay on Maui, Hawaii

The second thing that explains the different nature of this revolution is just how interconnected everything is. Technology, security, economic growth, sustainability. Technological change is never an isolated phenomenon. This revolution takes place inside a complex eco-system which comprises business, governmental and societal dimensions. To make a country fit for the new type of innovation driven competition the whole ecosystem has to be considered.

So if one thing changes – or is changing constantly, as in the case of technology – the whole system needs to change to keep up.

Everyone will feel the effects

We often hear people talk about the concept of ‘uberization’, where a new technology completely turns an industry on its head and forces us to rethink the way things have always been done. No industry will remain untouched by these forces.

Speaking recently to a CEO from one of the world’s largest aluminium manufacturers, I commented on how lucky his company was not to be affected by this revolution. As he was quick to point out, technologies such as 3D printing will completely transform his industry’s supply chain, with knock-on effects we probably have not even considered.

And the revolution will not just affect industries – it will also affect people. Many of the consequences will be positive. For example, medical research and technological innovations mean that in places like Switzerland, one in two babies born today will live beyond 100.

But whatever the changes, almost all of them will present a challenge. As new technologies make old jobs obsolete, for example, every person will have to make sure they are equipped with the skills needed for this new era of ‘talentism’ – where human imagination and innovation are the driving forces behind economies, as opposed to capital or natural resources.

Governments will also feel the impact of these changes. In the future, people will not be satisfied with ordering only their taxis through an easy-to-use application. They will also want to access public services in a similar way. More than any other sector, governments can also shape the consequences of the technological revolution, ensuring that the challenges are managed and the opportunities seized.

For example, although innovation and creativity tend to be driven by the private sector, governments create the environment that allows these things to flourish. They also have a large role to play in ensuring citizens are equipped to make the most of these tranformations.

Change can be frightening and the temptation is often to resist it. But change almost always provides opportunities – to learn new things, to rethink tired processes and to improve the way we work. The technological revolution has only just begun, and the transformations it will bring are a cause not just for excitement, but for hope.

From Team GNT™

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“The winds and the waves are always on the side of the ablest navigators.”  – Edward Gibbon


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