Petroleum Industry, Ecology and Economic Feasibility

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Executive Summary

The oil industry is the largest supplier of energy in the world. World oil consumption in 2018 is well over 34 billion barrels a year, with the US consuming more than 20% of it. At the same time, oil drilling and refining are associated with significant ecological and sustainability risks. Any potential solutions to the problem must be reviewed in the scope of ecological impact, sustainability, economic feasibility, and timeliness. The solutions reviewed in the scope of this paper include legislative regulation, developing and constructing high-tech and environment-friendly refineries, and exploring untapped reserves through deep-sea drilling.

Introduction

Energy is the blood of the modern economy. It powers our vehicles, allows trains, ships, planes, and cars to travel back and forth, delivering equipment, materials, and people to where they are needed daily. The US consumes more than 7.2 billion barrels of oil per year, which is more than 20% of the 34 billion barrels a year utilized worldwide.¹ Oil can be used not only as fuel but also as a primary material to produce various plastics. As shown in Fig. 1, the petroleum industry will continue to be a relevant and vital part of the existing world order for at least the next 30-40 years.

Fig. 1. Humanity’s energy consumption pool.

However, the petroleum industry is at the doorstep of an existential crisis. Oil supplies are dwindling quickly to sate the ever-growing need for energy. At the current rates of consumption, the world would run out of oil in less than 70 years.² Besides, the oil industry remains one of the primary sources of environmental pollution.

It is impossible to base affirmative action solely on concerns of ecology and sustainability. The oil industry is tied to the world economy in numerous ways. The purpose of this paper is to provide potential solutions for the oil industry based on the criteria of ecological safety, sustainability, and economic impact on the industry and society.

Assessment of Criteria

The four main criteria used in this feasibility report to assess the potential for implementation of various solutions to ensure the future of the oil industry are as follows:

Ecological safety. The situation has gotten to a point where ecological issues can no longer be ignored. The melting of polar ice caused by greenhouse gases has the potential to alter the world climate on a drastic scale. There is a danger of seacoast areas of being driven underwater by the rising sea levels. Oil spill accidents, such as the Deepwater Horizon incident of 2010, have the potential of altering major ocean water fluctuations, such as the Gulf Stream, thus negatively affecting climate worldwide.³
Sustainability issues. Fuel is a finite resource, meaning that humanity will eventually run out of it. Economic crises, societal changes, resource wars, and other consequences of the collapse of the petroleum industry will be felt worldwide.⁴ Therefore, any proposed solutions should provide a way of sustaining humanity with energy.
Economic concerns. Humanity exists in a complex system of political, territorial, and economic boundaries, which determine the feasibility and profitability of the industry. Ignoring economic concerns when designing solutions for the oil industry is impossible, as economics are tied in with prosperity, the standards of living, and the ability of a society to sustain itself.⁵
Implementation time. Change does not happen overnight, which is why it is necessary to estimate how quickly could the industry change to answer the pressing concerns of sustainability and environmental safety. Some solutions may be too slow to implement, based on these criteria.

These are the four main criteria that will be used to categorize various solutions

proposed in the following section. It is impossible to state which criteria are deal-breakers and which ones are more flexible because every solution is going to be evaluated on a case-by-case scenario.

Possible Solutions

There have been numerous attempts and propositions in regard to the petroleum industry. Although many of them have similar criteria for eligibility, most of them are focused on one or two of them as primary goals, while paying less attention to the rest. This section will evaluate some of the most popular solutions for the energy crisis that were already researched and implemented in associated industries.

Solution 1: Reducing Ecological Impact

Society and governments are interested in reducing the negative side effects of oil drilling and oil production. This is done through the introduction of various laws, rules, and regulations. An example of policies initialized by the government and enforced on large gas and oil-producing companies can be found in a study by Matyugina et al., which covers the reduction of water consumption and reduction of waste-water disposal in existing surface water bodies by Russian oil companies like GAZPROM, Bashneft, Rosneft, Lukoil, and NOVATEK.⁶ The report states that, while the ecological influence on the surrounding environment was significantly reduced (20-25% reduced discharge), it also correlated with increased costs for water resource utilization. In one year since the implementation of the program in 2012, water utilization costs for NOVATEK skyrocketed, reaching a 145.3% increase in 2013.⁷ Based on this information, it is possible to evaluate the effects of reduced ecological impact using the four feasibility criteria:

Ecological impact – significant. The regulations managed to reduce wastewater discharge by 20-25% in all participating companies. However, it must be noted that regulations do not help remove the environmental damage completely, only reduce it.
Sustainability impact – significant. Reducing wastewater discharge into surface water bodies means more clear and uncontaminated water. Also, companies were forced to re-use refuse water instead of dumping it, meaning less consumption in the long-term perspective.
Economic feasibility. Despite the impressive results in ecology and sustainability, Malyutina et al. report that the overall costs for water utilization increased by 145% in a year⁸ This is the case with nearly all ecological and sustainability regulations – they inevitably introduce new costs to compensate for the use of resources previously taken for granted. It is the reason why many developing countries simply cannot afford rigid environmental standards like the ones adopted in Europe and the US.
Timeliness. Regulations typically work quicker than other solutions due to forcing companies into compliance at their own expense. In this particular example, it took less than 4 years to achieve a 20% reduction in wastewater disposal.

Solution 2: Increasing Resource Use Efficiency by Applying New Technologies

Resource efficiency is a concept many petroleum companies are interested in, as it would allow them to produce more while consuming less oil, water, petroleum coke, and other materials. One of the most promising prospects of technological improvement involves the production of olefin and other high-octane fuels, which is associated with safer and less resource-consuming production processes. Chen states that olefin production can help reduce carbon emissions to a significant degree, while at the same time reducing the use of water in the process.⁹ The production of olefin and olefin-based materials, however, is very reliant on shoal oil and gas. However, currently, existing methods of olefin production rely on conventional steam cracking techniques. Innovation in the field requires significant investments, technological breakthroughs, and construction of new olefin refinery plants (or significant modifications to existing ones). Feasibility analysis:

Ecological impact – significant. Chen’s findings regarding reduced CO emissions, waste production, and water usage have a beneficial impact on the surrounding environment.¹⁰ In correlation with the previously-mentioned study by Matyugina, decreased wastewater disposal will result in greater volumes of uncontaminated water. ¹¹
Sustainability impact – significant. As it was already stated, the method focuses on sustainability and better use of resources. Less water and coke will be needed to facilitate olefin production. However, this method has increased reliance on gas.
Economic feasibility – variable. Although better technologies allow for sustaining profit in the long-term perspective, they take time and resources to implement. According to Amghizar et al., the availability of cheap propane, ethane, and methane are the primary determinants of the economic viability of olefin-based solutions.¹² Not all oil producers would be capable of performing the switch.
Timeliness. This is the weakest point of the proposed solution. The oil industry is incredibly conservative in terms of applying new technologies unless they provide a significant profit boost in a short amount of time. Constructing a new and technologically advanced refinery takes up to 10 years, whereas upgrading one requires five. It would take decades to facilitate progress.

Solution 3: Exploration of Uncharted Oil Basins

As it stands, the majority of surface-based gas and oil basins have already been discovered. However, land makes up only 29% of the world’s total surface. More than 71% of Earth is covered by oceans, which are largely uncharged due to constraints placed upon the necessity of deep diving.¹³ Recent advances in robotics, however, are enabling large companies to scout for oil underneath the surface of the ocean floor, whereas deep-sea drilling is already possible. Discovering hidden underwater basins would be able to provide Earth and humanity with the energy required to continue to prosper, even if the total energy consumption demand is expected to increase by 20% by the end of 2030.¹⁴

Ecological impact – negative. Deep-sea exploration and drilling are associated with a significant ecological impact on the local flora and fauna. Even the most benign ways of conducting the procedure are associated with local oil discharges and disturbances to the upper stratum of the ocean floor. Worst case scenario – the repetition of the Deepwater Horizon incident, perhaps on a larger scale.
Sustainability impact – significant. While the proposed solution does not improve oil consumption rates, it significantly improves the availability of oil as a primary energy source, expanding the critical margins from 70 years to 100 or more, offering a prosperous future for the petroleum industry.
Economic feasibility – good. Although deep-sea drilling is associated with additional expenses posed by exploration, construction of drilling platforms, and subsequent extraction, the volumes of oil produced and the increase in demand is likely to make the option feasible from an economic perspective.
Timeliness. Deep-sea drilling and exploration would take decades for humanity to fully realize. It is a long-term solution to the presented problem.

Solution Analysis

All three solutions proposed and attempted by various entities, be that companies or government bodies focus on one or two criteria in favor of all the others. For example, rules and regulations for petroleum companies are aimed at reducing environmental impact and improving resource sustainability as its second concern. Introducing new distillation and refinery technologies into the industry revolves around sustainability first and ecological impact as an intended beneficial side effect. Economic concerns are considered secondary, which is why few oil companies are willing to embark on the reformation and upgrades in their existing infrastructure. Lastly, deep-sea exploration and drilling largely seek to solve the problems of economy and sustainability, while inevitably causing harm to the surrounding environment.

These three solutions are not mutually exclusive but can have detrimental effects on one another. For example, restrictive rules and regulations for deep-sea drilling in addition to public backlash in the aftermath of Deepwater Horizon managed to significantly reduce the profitability of ocean-drilling efforts.¹⁵ The image in Fig. 2 represents the scope of the tragedy. At the same time, these same restrictions have the potential of making refinery upgrading and technological advancements a more attractive solution.

One quality of all three solutions have in common is that neither of them offers a permanent settlement to the petroleum industry dilemma. Oil remains a finite source, and while all three measures combined have the potential to prolong the use of oil as a primary energy source for humanity and reduce environmental factors associated with pollution. None of them helps reduce oil dependency on the world economy or completely mitigate the negative influence on climate, nature, and the environment.

Stakeholder Concerns

Stakeholder concerns play a very important part in trying to balance ecological concerns with sustainability efforts and economic feasibility. Four large stakeholder groups are involved in the process of oil extraction, distillation, waste disposal, and marketing. These groups are as follows:¹⁶

The government. This stakeholder group is interested in ecological sustainability and economic profits from oil production.
Society. A large and divided stakeholder group, which is interested in all four criteria, based on personal views, politics, and the economic situation. To summarize, the society is interested in ecological, sustainable, and cheap fuel. Has a strong influence on the government during crises.
The producers. If we take companies as organizations and not as individuals, companies are interested in maximizing profits to exist and in sustainability as a means of increasing profits. Can also influence the government through lobbying.
Flora and fauna. These are the most vulnerable stakeholders. Plants and animals are interested in keeping their habitats clean of pollution, and it is humanity’s duty to try to preserve these interests.

As it is possible to see, stakeholders’ interests often conflict with one another while remaining interconnected at the same time. For example, forcing the producers into compliance with many ecological norms and demands would inevitably raise costs for fuel, which would contradict the interests of the society. Every solution proposed by this paper favorably affects some of the stakeholders while neglecting others. Regulations appease the demands of the government of the society for an environmentally friendly industry while forcing the producers to raise prices. Technological advancement seems to appease all related parties but takes a while to implement. Deep-sea exploration and drilling neglect flora and fauna as valuable stakeholders. Finding a balance between interests is very difficult due to a multitude of stakeholder subgroups.

Recommendations

All three solutions are potentially viable to slow down the advance of the impending oil crisis threatening humanity and the global economy. However, the crisis is also likely to escalate due to the increase in demand. The world needs to realize that the petroleum industry, as useful and necessary as it is at the moment, is a dead end. The oil will run out eventually, meaning that humanity must find alternative sources of sustainable energy.

Ecological concerns associated with the petroleum industry must not be neglected either, or Earth will suffer an environmental catastrophe long before its oil reserves run out. Therefore, the only valid recommendation is to research alternative sources of energy and slowly shift the economy towards it, and of the petroleum needle. However, until such sources are discovered and enabled to fully take care of humanity’s ever-growing needs, the oil industry must minimize its environmental impact and sustainability issues by implementing the first and second solutions in conjunction with one another. Deep-sea oil drilling must remain as a potential long-term solution in case more accessible sources of carbohydrates run out before new sources of energy are researched and fully introduced.

Conclusion

The oil industry is the cornerstone of the global economy, amounting to more than 40% of the total energy consumption pool. However, the industry is associated with various aspects dangerous to humanity in the long run, such as the concerns of sustainability, ecology, and finite capacity of carbohydrates on the planet. Although there are still significant reserves located underneath the ocean floor, humanity must introduce new environmental laws and promote technological advancements in the petroleum industry to improve the existing situation. Deep-sea drilling should be used sparingly, as the potential ecological consequences of accidents like Deepwater Horizon are just too high.

Works Cited

Amghizar, Ismael et al. “New Trends in Olefin Production.” Engineering, vol. 3, no. 2, 2017, pp. 171-178.

Chen, Nai Y. “An Environmentally-Friendly Oil Industry.” Chemical Innovation, vol. 31, no. 4, 2001, pp. 10-21.

Cumulative BP / Deepwater Horizon oil slick footprint (red). Skytruth.org, 2010. Web.

Fisher, Franklin M. Supply and Costs in the US Petroleum Industry. Routledge, 2015.

Humanity’s Energy Consumption Pool. Institute of Energy Research, 2018, Web.

Matyugina, Elena G. et al. “Oil and Gas Company Policy Regarding the Concept of Sustainable Development (Water Resources).” Earth and Environmental Science, vol. 33, 2016, pp. 1-6.

United States Environmental Protection Agency (EPA). “Sources of Greenhouse Gas Emissions.”EPA. Web.

Vassiliou, Marius S. Historical Dictionary of the Petroleum Industry. 2nd ed., Rowman & Littlefield, 2018.

Appendix A

Appendix B

Footnotes

The United States Environmental Protection Agency (EPA). “Sources of Greenhouse Gas Emissions.” EPA. Web.
The United States Environmental Protection Agency (EPA). “Sources of Greenhouse Gas Emissions.” EPA. Web.
Vassiliou, Marius S. Historical Dictionary of the Petroleum Industry. 2nd ed., Rowman & Littlefield, 2018.
Ibid.
Vassiliou, Marius S. Historical Dictionary of the Petroleum Industry. 2nd ed., Rowman & Littlefield, 2018.
Matyugina, Elena G. et al. “Oil and Gas Company Policy Regarding the Concept of Sustainable Development (Water Resources).” Earth and Environmental Science, vol. 33, 2016, pp. 1-6.
Ibid.
Matyugina, Elena G. et al. “Oil and Gas Company Policy Regarding the Concept of Sustainable Development (Water Resources).” Earth and Environmental Science, vol. 33, 2016, pp. 1-6.
Chen, Nai Y. “An Environmentally-Friendly Oil Industry.” Chemical Innovation, vol. 31, no. 4, 2001, pp. 10-21.
Chen, Nai Y. “An Environmentally-Friendly Oil Industry.” Chemical Innovation, vol. 31, no. 4, 2001, pp. 10-21.
Matyugina, Elena G. et al. “Oil and Gas Company Policy Regarding the Concept of Sustainable Development (Water Resources).” Earth and Environmental Science, vol. 33, 2016, pp. 1-6.
Amghizar, Ismael et al. “New Trends in Olefin Production.” Engineering, vol. 3, no. 2, 2017, pp. 171-178.
Fisher, Franklin M. Supply and Costs in the US Petroleum Industry. Routledge, 2015.
Fisher, Franklin M. Supply and Costs in the US Petroleum Industry. Routledge, 2015.
Vassiliou, Marius S. Historical Dictionary of the Petroleum Industry. 2nd ed., Rowman & Littlefield, 2018.
Fisher, Franklin M. Supply and Costs in the US Petroleum Industry. Routledge, 2015.

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