A couple of months ago, when someone said “Gulf,” and the listener lived outside of the southern most regions of the United States, the most likely image would be oil, Middle Eastern oil. Today people still think of oil, but the image is not that of the Persian Gulf and tankers bringing exported oil to US shores. No, today the image has shifted to miles of shimmering slicks in the Gulf of Mexico, threatening to change the economics of oil through citizen and government pressure, and to spoil, for decades perhaps, some of best US fishing areas, as well as natural structures that support wildlife and protect the inland from other potential disaster makers, like hurricanes.
Eventually the oil will stop flowing from the ocean floor. Eventually the last remnants of oil will sink deep into sands and waterways until in ceases to be a daily reminder of our human engineering failures. Before that time, however, we we need to look beyond the current spill and consider better ways to prevent future ones.
One way to avoid such disasters is for companies and governments to invest in scenario planning, which helps make “unimaginable” events like the current Gulf oil leak imaginable. Scenarios help companies “practice” uncomfortable futures. They provide organizations with tools and insights that position them to react to highly improbably, but plausible circumstances, more quickly and decisively.
Petroleum company’s pioneered the use of scenario planning. I have conducted a cursory search of the Internet and BP’s website and did not discover any scenario planning that they share with the public. Royal Dutch Shell, on the other hand, publishes their scenarios in great detail (see shell.com, looking ahead, here). Shell’s scenarios, however, from a strategy perspective, would provide little cover if they had experienced the crisis in the Gulf of Mexico because scenarios are typically at a level of abstraction well above tactical operational concerns. Shell’s Scramble and New Blueprints scenarios describe the way the energy market may evolve, but they say little about the impact of a major, oil-industry related catastrophe. They do not ask, for instance, if a major traditional oil spill event pushes the US over in terms of its dependence on oil, and drives the development of a natural gas infrastructure in parallel to alternative energy development.
Regardless of the existence of BP scenarios or not, they mostly likely did not ask questions pertinent to their current situations. If an organization doesn’t focus on the right questions, even its best creative explorations will not help it imagine situations in which it did not seek elucidation.
Three things strategic steps every oil company should take today.
1. Create a consortium that monitors technology maturity independently of the oil companies so that when a technology is proposed for a particular application, government regulators can have the approach independently verified as to risks and effective use of the technology. This group can also oversee industry level lessons learned and create a response knowledge-base that would be publically, and thus, rapidly available. The consortium could also develop long-range scenarios for the industry that focus on risk rather than markets, in order to help member companies, consumers/citizens and regulators understand industry issues in a more meaningful way.
2. Expand their portfolio of risks and share those with the public. Create a deep dialog about energy trade-offs and risks. Most large oil companies are in the process of attempting to become energy companies. Most manage more than one type of fossil fuel or derivative. By being open about the risks and trade-offs
3. Deepen investments in bioengineering firms to seek new, safer biologically-based ways to clean-up large spills. We already know that some bacteria eat oil. It is a natural process. Can investment accelerate that process when spills occur? As oil companies seek to reinvent themselves after this event, they need to expand their profiles to demonstrate that they understand the inter-relationships between oil and larger ecosystems.
Three strategic steps every government with leased, off-shore oil fields, should take today.
1. Develop new regulations for well-safety that include independent simulation for failure modes and insist that drillers provide risk mitigation plans for high risk failure modes as well as detailed reaction plans for those failure modes. Reaction plans must be based on current technology and can be updated regularly as technology improves. Wells in areas where technology does not exist for sufficient management across failure modes should be denied outside of “learning” wells that are jointly monitored by drilling companies and regulators.
2. Pass regulations that demand real-time data feeds on critical platform operations so that regulators can monitor operations with sufficient levels of due diligence.
3. Elevate the regulatory body responsible for monitoring oil drilling and make its data open to citizens. Open the feedback loops so we aren’t scrambling when something happens to find solutions, but we are actively engaging in dialog from a wide range of perspectives, in hopes that we can avoid issues before they occur.
There are a number of cooperative actions that have been underway for years, such as safer dispersants, more practical ways to clean-up beaches and wildlife. Those need to continue. The president has established a special commission to invest in this spill, but I believe we need to create a more systemic review process that would open up the records, not only to this event, but to current challenges across the industry. One time commissions that study a single problem and make recommendations on that problem don’t work against a big enough canvas to reveal issues and causal relationships that exist beyond the bounds of their purview. By elevating the regulatory teams, forcing proactive transparency. The NASA Challenger inquiry did reveal deeper issues with the agency, but that event was contained within one agency, its supply-chain and its operational outsourcers. The oil industry represents a much more complex set of relationships that would be lost in a probe of a single event driven largely by one company and a couple of outsourced agents. This event should lead to a general restructuring of oil exploration and production oversight that would encompass the entire industry, at all levels.
Some of the companies who drill for oil of the coasts are state-owned, and those should be particularly cautious to ensure that their commercial concerns do not outweigh citizen or environmental relationships. Oil companies related to states should not be exempt from openness. The US should insist that any imported or domestic oil was derived from the safest conditions possible for an industry that in inherently unsafe. If another event like the Gulf of Mexico explosion occurs, where the fingers point should be clear, and it should include the entire supply-chain, industry groups and the government. By creating a more shared-risk and responsibility model, the industry would naturally create more checks-and-balances. Those not willing to work within the new framework would be weeded out as the industry evolves a more transparent relationships.
Proactive transparency, as I wrote in Listening to the Future, is a choice. Those who embrace transparency in this age of openness will have a competitive advantage over those who attempt to hide information. We need explicit, visual feedback loops that reveal knowledge gaps. The energy industry is at a crossroad of trust. Those organizations who want to transcend this moment, should be actively sharing everything they can, even things that might not make them look so good, in order to maintain consumer trust.
Drilling at 5,000 feet may be an adventure for some, but it is not the same as the risks associated with new exploration or new science that is about the risk for a few seeking to expand the horizons of humanity. The risk with this spill was much larger than loosing the men on the platform or the cost of the rig or a few robots. Failure here affects millions of people. That kind of risk needs to be mitigated.
The Internet and its amplification of individual voices means that information will eventually leak just like the oil that seeps from even the best maintained and professionally operated well. Rather than wait for that information to wash up negatively on the blogs and social networks of the Internet, share it openly and engage in honest dialog about what it means. We are all complicit in the use of oil. We make the choice everyday to keep using it. If we all share the blame, then we should also all be obliged to contribute to the solution. But we need to be able to understand the issue through information. We need to use that information to visualize the energy ecosystem to see its risks, to weigh its benefits. This will allow consumers to actively engage in imagining better, safer, more efficient, energy futures. And it is only through the demand side of this equation that real change will take place.