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August 11, 2015

Oil Industry Driven By Consumers and IT

Posted by Rajesh K. Murthy (View Profile | View All Posts) at 10:20 AM

Are you fit for 50? : What oil & gas industry is grappling with [Source: https://www.youtube.com/watch?v=YkKhR1lpeHs]

It's easy these days to be bullish about fossil fuels. Like or not, oil still powers the high-tech, digital economy. Sure, some companies have 'gone green' by placing solar panels on their roofs. But a commitment to sustainability can be an expensive one and especially hard to justify when boards of directors are watching how every last cent is spent in a company.

Why does the world remain addicted to oil? Well, because it's relatively cheap and abundant. But what happens when the countries that pump most of the world's black gold decide they want to flood the market with it? Prices of oil futures plummet and have a domino effect on just about every other industry.

I take a longer and more enthusiastic view about the role that alternative energy will play in our future. The prediction that we sometimes hear that the world will only truly develop alternative sources of energy when we run out of the oil is a very pessimistic view. Massive progress is being made around all forms of alternate energy. To be sure, cheap oil prices have lowered the incentive for the development of alternative sources of energy. But the price of oil can skyrocket overnight (much like it has numerous times before). That's why the global community needs to be more prepared to have other sources available that will help industries wean themselves off fossil fuels.

Even in the automotive industry we're seeing an enthusiastic adoption of clean, efficient, electric propulsion. The United States is one of several countries that have come up with very ambitious mandates to reduce fossil fuel emission levels by (in the American case) 2030. Placing massive pressure to increase the supply from alternate sources is smart in many ways. From those who preach 'peak oil' - that we're running out of it sooner than we think - to those who advocate cleaner air and water, the search for alternative forms of energy that are practical makes sense.

Years ago, when a company claimed to be 'going green,' it was often little more than a sleek public relations campaign. But today most of the Fortune 500 companies have real skin in the game. They know that a reliance on fossil fuels is unsustainable in the long run and those who get first-mover advantage - like anything else in the business world - stand to reap the rewards of clean, efficient power sources.

Now there's another player in this scenario that wasn't really present in the past. The consumer. Whereas before, the consumer was passive, today she is an active participant in determining what kind of energy runs her house and business. And when the market speaks, enterprises listen. In fact, the biggest game-changer here might very well be the consumer, not a regional energy cartel. Consumers are increasingly having more say in choosing their source of energy supply. There's yet another new player in the energy markets. And that's information technology. We know with the utmost precision where the world's untapped (and tapped) oil rests, as well as the exact amounts of it. Countries that produce a lot of the world's oil, such as Saudi Arabia, know practically down to the drop how much of it they can expect to extract and store over the next year.

We can thank real-time analytics, Big Data, and advanced geological practices for the ability to know what lies miles beneath the earth's crust. And when it will run out. No doubt about it: Oil is a century-old commodity that's fairly well established as a business. But its days are numbered and information technology is fueling a new revolution. The most successful enterprises of the coming decade are devoting themselves to alternative sources of energy because not only is it a prudent business decision to make. It's a decision that fuels innovation as well. Searching for new and efficient ways of manufacturing and transporting products is good business for all of us: enterprises and consumers alike. Nobody ever said weaning an enterprise off oil that's currently cheap is an easy or popular decision. But in the long run it's the right decision.

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