Watch out for the tsunami

Watch out for the tsunami 

By Kjell Erik Drevdal, CEO X2 Innovation Center 

35 years active involvement in the development of the Norwegian oil industry, creating immense wealth to the Norwegian society, has made me proud. Solving complex challenges together with courageous and creative people, implementing innovative solutions, technology and methods is valuable experience.

A long period of comfortably high oil prices enabled oil companies surf on a cash tsunami. Consequently cost structures in the industry escalated. This fact made most of us think this would last forever. We were not observant enough to see what was coming, even though it is obvious when looking back.

The impossible shale oil
Back in the 1980’s the learning said that shale was impermeable and hence a perfect cap rock. This was common knowledge for petroleum engineers. Oil trapped in shale was immovable. The Americans started shale fracking, shale oil field development and shale oil production some 10 years ago. Many did not pay attention. Theories taught at universities prevented this becoming a treat to the oil price, and ultimately the industry. Few assumed this method becoming a success. What a terrible assumption!

A changing industry
Even though realizing this becoming a treat, many oil industry managers stuck their head in the sand rejecting the fact.

Late 1970’s, Kodak and most photography film makers did the same when the price of silver increased from 2$ to 50$ over a relatively short period of time. The rich Hunt brothers buying silver in big quanta on speculation to finance oil investments seriously hurt the film industry. Silver nitrate is a key substance in the film/photography production. However, this silver coup failed early 1980’s. Silver prices fell back to “normal” a year later. Kodak management was relieved. Everything became business as usual.

Success factors
Fuji, however, approached the relief differently.  They analyzed the situation, learned and understood the global trends and changed their strategy. Digitalization became their main focus in developing new business. With 78 000 employees, Fuji earned $25 billion in 2011. Kodak filed for bankruptcy the following year. An eye-opening example of how traditionally thinking management can ruin great companies. This is serious learning. However, some smart and observant managers saw this wave coming. Well and safe positioned they watched the tsunami hit. Tsunamis retracting are leaving dry land, exposing a mess. Companies not able to ride the wave are usually left badly hurt, if even alive.

So, my dear friends in the oil industry. Please, keep a close eye on the development of new trends. The global development of renewable energy sources like solar and wind are moving fast. Even nuclear power solutions can become an important option (among the cleanest and most efficient available). Do not ignore the fact. Climb to a safe viewpoint and follow this wave. It might be a new tsunami coming.

Please contact me if you want to catch the next big wave.