It is an acknowledged fact that there is a scarcity of supply in the oil and gas industry. This will definitely affect both global markets and energy strategies
We are feeling the pinch whether we realize it or now. As supply dwindles or becomes unstable, oil and gas prices rise. This affects everything from transportation to manufacturing, as oil and gas are key to energy production and as raw materials for many industries. In 2022, the U.S. faced significant spikes in oil and gas prices, possibly due to Russian-Ukraine conflict. This led to higher gasoline prices, with some regions seeing prices over $5 per gallon. Rising energy costs also increased the price of goods and services, contributing to inflation and squeezing consumers' disposable income.
Countries that heavily rely on oil imports may face national security risks due to dependence on unstable or hostile regions. This could lead to geopolitical tensions as nations compete for remaining supplies.
Germany has long been dependent on Russian natural gas, which made up a significant portion of its energy supply. When Russia cut gas supplies during the Ukraine war, Germany faced an energy security crisis. Nigeria, one of Africa’s largest oil producers, has an economy highly dependent on oil exports. In recent years, declining global oil prices have severely impacted its economy. For example, the 2014-2016 oil price crash caused a recession in Nigeria as government revenues and foreign exchange reserves plummeted.
Energy-intensive industries, such as transportation, manufacturing, and logistics, would face increased operational costs. Inflation could rise as the cost of goods and services increases.
Governments may be pushed to accelerate policies aimed at reducing reliance on fossil fuels, speeding up transitions to greener energy sources. Denmark has been a leader in climate change action, using the oil and gas supply issues as an opportunity to accelerate its renewable energy transition. In 2020, Denmark announced a plan to phase out all oil and gas exploration in the North Sea by 2050 and committed to cutting greenhouse gas emissions by 70% by 2030.
Countries whose economies are heavily reliant on oil exports, such as those in the Middle East and Africa, might face economic instability as revenues decline, especially if global demand shifts due to green energy policies.
Environmental, Social and Governance (ESG)
Pushing the Environmental, Social, and Governance (ESG) initiatives and Sustainable Development Goals (SDGs) is critically important in addressing the challenges posed by oil and gas scarcity, rising energy prices, energy security concerns, economic disruptions, and climate change.
Renewables are abundant, sustainable, and have become increasingly cost-effective. Solar and wind, in particular, have seen significant technological advancements, making them scalable and more affordable.
Nuclear power is a low-carbon energy source with a high energy output. It's a reliable alternative that can provide consistent baseload power.
Hydrogen can be used as a clean fuel, especially for industries where electrification is difficult (such as aviation, shipping, and heavy industry). When produced using renewable energy (green hydrogen), it becomes a low-emission alternative.
Biofuels are derived from organic materials and can serve as a direct substitute for conventional fuels in vehicles and other equipment, reducing dependence on oil.
Geothermal energy is another renewable source that provides consistent energy output and can complement other renewable sources like solar and wind.
- Environmental Impact Reduction (ESG: Environmental / SDG 7, 13)
One of the primary drivers of oil and gas scarcity is environmental degradation, fossil fuel dependence, and rising demand. ESG and SDG frameworks prioritize a transition to cleaner, renewable energy sources like solar, wind, and geothermal, reducing reliance on finite resources. For instance, SDG 7 (Affordable and Clean Energy) promotes increasing the share of renewable energy in the global energy mix, while SDG 13 (Climate Action) targets urgent actions to combat climate change. Enhancing Energy Security (ESG: Governance / SDG 7):
Countries dependent on oil and gas imports are vulnerable to geopolitical instability and supply shocks (e.g., the European energy crisis due to the Ukraine war). SDGs, particularly SDG 7, encourage the development of diversified, renewable energy sources that can enhance energy security.
Companies like #Tesla and countries like Denmark are leaders in this space, shifting toward renewable energy as a core part of their ESG commitments, reducing emissions, and ensuring long-term sustainability.
- Mitigating Economic Disruptions (ESG: Social and Governance / SDG 8, 9):
Economic disruptions due to rising oil prices can impact businesses, households, and governments, particularly in countries reliant on fossil fuel industries. ESG’s social focus on fair labour practices and economic inclusion aligns with SDG 8 (Decent Work and Economic Growth) and SDG 9 (Industry, Innovation, and Infrastructure), which encourage innovation and investments in sustainable infrastructure and technology. This promotes resilient economic systems that are less vulnerable to fossil fuel price fluctuations.
Countries and corporations that diversify their energy sources and invest in green technology can build more stable economies. For instance, Iceland, which relies heavily on geothermal energy, enjoys energy security and price stability, even during global oil shocks, making its economy more resilient. Furthermore, oil-dependent economies like Nigeria need to invest in renewable energy and technology to reduce vulnerabilities to oil price volatility and ensure more sustainable economic growth.
- Accelerating Climate Action (ESG: Environmental / SDG 13):
Climate change is driven by greenhouse gas emissions, most of which come from fossil fuels. SDG 13 (Climate Action) emphasizes the urgent need to combat climate change by reducing emissions, and ESG frameworks push companies and governments to take immediate action in line with these goals.
Climate action is not just a moral obligation but also a financial and security necessity. ESG investments often outperform fossil-fuel-heavy companies in the long term, as markets and regulations increasingly favor sustainability. Furthermore, focusing on decarbonization efforts through ESG and SDGs not only mitigates the effects of climate change but also protects vulnerable populations from its worst impacts.
Countries like Sweden and companies like #Unilever have shown that ambitious climate action can drive innovation and financial success. These entities have incorporated ESG principles and have actively pursued SDG-aligned strategies to decarbonize their operations.
Pushing ESG and SDG initiatives is essential to solving the interconnected challenges of oil and gas scarcity, energy security, economic disruption, and climate change. By fostering cleaner, more sustainable industries and infrastructures, ESG and SDG goals create resilient, future-proof systems that can adapt to resource constraints while also addressing environmental and social issues at their core. These frameworks not only help mitigate the current problems but also lay the foundation for a more sustainable, equitable future.
