The Energy Industrial Complex is dead

Who remembers what a film roll for photographic film from Kodak Eastman is?

Once upon a time, photography was a perfect business. To have some memories of – whatever – you needed a big clunky camera that you had to buy expensively plus you needed those film roles in varying qualities and sensitivities depending on what it was you wanted to freeze on a picture.

Once the roll was all used up you had to go to your photo-developer-shop which then developed the picture while you did not even know what the result was going to be.

Besides, if you wanted to use different film resolutions, you had to swap films which meant that if the old film was not done altogether you either could rapidly fire until it was done or you wasted part of the drum resulting in lots of wastage. No wonder people tried to average out everything as this entire process was forbiddingly expensive.

Once photos were developed, you were able to find the good ones relegating the others to the waste bin or an old shoe box.

A single picture was precious because of this wasteful process as it carried the price of all this waste in it.

And companies like Eastman Kodak had built empires upon our memories. They provided the films, developed them, produced the chemicals, and ran service outlets. They even sold cameras until – one day it all stopped and a corporate empire that stood for ages went bust in a matter of mere years.

The world flipped a page as digital photography together with the internet and cloud solutions and picture-sharing sites such as Instagram and Pinterest changed the game.

A corporate giant (and several lesser ones) is no more. Gone.

Is this happening to big oil or indeed big energy now?

The picture (memories) business was a giant industry that had everything under its roof. Advertising enticed us to make more pictures which raised profits at companies such as Kodak that in turn bought ads in traditional media making us make more pictures and …

Do you get the picture? The disappearance of Kodak and the lesser flock did not cause pictures to disappear. There are more pictures than ever before around today recording our memories in painstaking detail and vivid color, even sound, and movement.

Now, there is an uneasy feeling in the energy industrial complex that something is wrong, something has changed the equation for good. The oil price has dropped to abysmal lows (that’s at least how those who sell oil see it) and everyone is holding their breath for better times – i.e. the rise of the prices again.

I have had numerous rants about the unrealistic expectations of energy executives so let’s not go down this path again.

What’s way more interesting is a much more fundamental issue. Because this time there might be more than just another swing of the curve in the offing.

Because this time a combination of factors begs to differ from earlier swings to the bottom of the price barrel.

Let’s look at the other downturns like – the one of the Eighties. We have seen all this – for the longest time, oil-producing nations had gotten used to the fact that the world was beating a path to their doors for getting their hands onto the black goo and some of those producers had it coming in splendid for such a long time that they grew abusive of it.

High oil prices just made everyone reckless as everyone supposed that the party would be going on forever. Does that ring a bell with you? That’s what we see right now. Those very energy executives who just a few years ago thought that they had the planet by the balls are on their knees now and begging for survival. Please world, make those prices rise again and put the party on again, or else …

So far, so bad. Just another swing in the eternal roller coaster of oil markets and prices. Not so fast.

The picture industry had some turns as well. They were not as nasty as the swings in oil cycles were, they were much quicker to come and go but the same fundamentals are at work in pretty much any profit-producing industry as long as there is no real hard monopoly.

But when eventually something revolutionary new came to maturity, death was delivered quickly and with a vengeance.

Shale is just one of the new technologies that came to the fore. It was here for decades, some say centuries. But just now the oil industry learned that optimization and industrial concepts such as smart logistics, smart operations, and streamlined repeatable processes mean more than prodigy at drilling in super challenging conditions such as deep offshore or the far north.

And Pandora’s box has just been opened. A decade of really high prices sent everyone scrambling to secure a piece of the oil and gas pie so an awesome lot of people, companies, and even countries have sunk a mighty buck in the industry. Many will not let go easily just because prices go underground for a little while.

Many will throw more money after their billions to wait it out for their investment to see the dawn of a better morning. Doing so, they will be ruthless in optimizing the hell out of their operations. And find new innovative ways of how to run oil cheaper and more efficiently than ever before. Who cares about saving a buck when the times are great?

This breakneck cost-cutting and optimization carry the seed of much greater havoc to classic oil companies as automation, standardization, and modularization will make oil and gas an ever more predictable business, and time from concept to oil gushing down the pipes goes down from decades to mere years or even months. Shale is not dead – it gets the kick in the balls it needs to become a true blockbuster as at those price levels the transport factor will become important again. Soon it won’t make sense anymore to transport even cheaper oil to the areas drilling for shale as shale will outcompete them at every twist and turn. And any little upswing in price will quickly be shaven off by rapid-fire shale oil drillers. All this zombie iron can be reactivated quickly.

That’s the technology shift. In the past, big oil was afforded the double protection of almost monopolies together with the certainty that waiting it out would work in the end and that prices would rise eventually if they just held their breath long enough. But if shale drillers shave off any little upturn in prices with lightning speed, this price recovery might never come or this time, it might just be too late for the dinosaurs to keep stomping on.

The energy-industrial complex might go the way of Kodak and simply vanish. And what comes in its place will be far better than anything we ever dreamed of. But the way into the glorious future will be littered with corpses.