Trust Challenges
To demonstrate that it can maintain the value creation
proposition for investors in the face of growing
uncertainties, the oil and gas industry will need to embrace
strategies that can create value in any scenario, including
shortening project cycle times, minimizing product losses
(including methane leakage), and increasing recycling and
reuse of inputs such as water, heat and steel. Such
strategies align industry more closely with technical
solutions that will be attractive to society as a whole.
But fundamentally, in order for the oil and gas industry to be
seen as a partner in energy solutions and economic
prosperity – rather than a source of environmental damage
and driver of sectarian conflict – the industry will need to
address the serious trust challenges created by the failures
of its worst ranks. A 2013 Gallop poll, for example, ranked
the oil and gas industry as the least trusted industry, tied for
last place with the tobacco industry,
despite the pivotal
importance of energy in daily life. This loss of trust has been
amplified by the industry’s linkages to controversial lobbying
and law suits against climate change policies and other
environmental and safety regulations. The industry tends to
see the solution as better communication of technical
issues. However, the public is seeking both measurable
improvement in performance and greater transparency and
disclosure.
The more challenging environment for oil and gas
investment increases the stakes for addressing aboveground risks that prevent or delay resource development.
Even with more stringent climate policies, oil will remain the
dominant fuel for transport for the next two to three
decades. And yet, oil and gas industries often meet sharp
resistance around the world in many communities that have
experienced negative environmental, social and geopolitical
consequences from oil and gas exploration and
development. Oil and gas companies have set expectations
among their stakeholders that they can operate without
negative environmental impacts, but, in many cases, actual
performance has fallen short of these expectations.
Many operators work to high standards and go beyond
reasonable efforts to clean up spills and restore the
environment to its previous condition. However, highly
visible lapses in environmental performance have
undermined the confidence of an influential segment of
society of the willingness of oil and gas companies to
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deliver fuel without undue costs on society that exceed the
social benefits received.
The oil and gas industry is also plagued by incidents and
accusations of corrupt practices. The idea of a corrupt oil
and gas industry is deeply ingrained in public perceptions in
many parts of the world and remains in the news with major
events like the Petrobras and Nigerian government
scandals. This lack of public trust in the industry
complicates project development and jeopardizes
government approval for major infrastructure projects.
However, corruption matters beyond public trust. It is an
enormously costly problem that creates operational and
supply chain inefficiencies, can result in huge fines and
compliance costs in the aftermath of a scandal, and has a
negative impact on the distribution of wealth in certain
societies, linking economic damage and political instability
to the oil industry itself. Mistrust, strained relations and
conflicts with local communities remain a problem in many
locations. A private Goldman Sachs study indicated that
nearly half of the risks facing projects were non-technical,
with stakeholder-related risks being the single biggest
issue.
