The Future of Oil: An Analysis of the Transition to Renewable Energy Sources

Asst. Prof. Suhad A. Rasheed

The University of Basrah
Faculty of Administration and Economics
Department of Economics
[email protected]
https://orcid.org/0009-0002-8824-1126

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 ABSTRACT
ARTICLE INFO Purpose: The study aims to investigate the future of Oil regarding usage of
renewable energy resources to utilize and conduct its best usage.
Article history:
Theoretical framework: The oil industry is highly dependent on the resources of
Received XX November XXXX energy and it is very much important to consider those resources appropriately and
accordingly.
Accepted XX January XX
Design/methodology/approach: The focus of this study is towards the usage of
how energy resources are going to be used and how much resources are required in
Keywords: order to make the oil future more secure by allowing them to get conducted more
appropriately with all big powers in the nation.
Future of oil;
Findings: The findings demonstrated that the market timing hypothesis has ongoing
Renewable energy effects whenever book leverage and market leverage are utilized. In addition to this,
resources; it has an effect on the financial structure of oil enterprises through influencing the
most critical factors that determine the financial structure in oil industries.
Transition energy resources.
Research, Practical & Social implications: In this particular piece of research, the
influence of market timing theory on the organizational finances of oil businesses
was analyzed using not one but two distinct models. It is hypothesized that the small
amount of profit that is distributed to stockholders contributes to the minimal level of
stock trading that exists in the oil market.

Originality/value: Previous studies has limited research now this study will
elaborate more research regarding oil future with the usage of transition energy
resources

Doi: xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

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INTRODUCTION

This developing consensus about a near-term future of diminishing oil demand provides

key indicators for the various levels of government in Canada as well as the country's

oil production sector. These scenarios appear to highlight the inherent dangers

associated with investing public or private capital in a sector that is struggling with

demand issues. In order for Canadian oil businesses to remain competitive in the near

term in a zero-energy future where demand is likely to decrease, it is necessary to be

aware of these risks.

The oil and gas industry are facing an increasing amount of pressure to provide

an explanation for how energy transitions will impact their operations and business

models, as well as how they may contribute to the reduction of greenhouse gas

emissions and the accomplishment of the targets set forth in the Paris Agreement.

There is a growing amount of social and environmental pressure being placed on a

number of oil and gas firms, which raises a number of complex problems regarding the

position of these fuels within the shifting energy economy and the society in which they

operate.

However, in light of the rising levels of greenhouse gas emissions, the

fundamental question is fairly straightforward: should the existing oil and gas

organizations be seen solely as part of the problem, or could they at some point also

play an urgent role in finding a solution to the problem? In this paper, which focuses on

the long-term program of analyzing the eventual fate of oil and gas that is being

conducted by the IEA as part of its World Energy Viewpoint (WEO) series, the

International Energy Agency (IEA) discusses the matter at hand (Danison, 2014).

This research does not intend to provide answers that can be considered

conclusive due to the enormous range of oil and gas companies and business strategies

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that exist all over the world. It tries to map the risks that are faced by the various sectors

of the industry, in addition to the many options and remedies that are available.

In the oil and gas business, there has been a rise in the number of requests for

explanations regarding the significance of changes in energy for the industry's goals and

strategies.

This inquiry is constrained in three different ways by various factors. First, there

is the potential for an increase in demand for energy-related services as a result of a

developing worldwide economy and a growing global population, a portion of which is

currently unable to access modern forms of energy.

Second, the acknowledgment that the vision of the future requires affordable and

dependable supplies of a variety of liquids and gases, and that oil and natural gas play

an important part in the energy and economic systems that are in place today.

In addition, and this should not be considered the least important point, it is essential to

cut down on energy-related emissions in order to meet global environmental targets.

In spite of the fact that it could look like these features are at odds with one another, this

is not necessarily the case. The World Economic Organization's (WEO) Feasible

Improvement Situation (SDS) shows a path that is entirely predictable with the Paris

Agreement by keeping the rise in global temperatures to "well below 2°C... and seeking

to limit [it] to 1.5°C" and meeting the targets. This can be accomplished by limiting the

rise in global temperatures to "well below 2°C... and seeking to limit [it] to 1.5°C."

combined with improved availability of energy and improved air quality (Davies, 2018).

The study also discusses a condition known as the expressed arrangement situation

(STEPS), which reveals where the industry of energy would be headed if the existing

strategy of wants and plans were implemented. These results are not even close to

meeting the globally agreed-upon sustainability goals.

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As a consequence of this, the focus of this paper is on accelerated energy transitions, the

forces that could drive them (whether they originate from society, politics, technology,

investors, or industry itself), and the effects that this would have on various

components. the oil and gas sector as it exists now.

The oil and gas business are about to be put to the ultimate test when it comes to

compensating temporary workers who have had their work permits revoked. Companies

are pushing for carbon reductions as well as energy service improvements at the same

time. Oil and gas firms are able to successfully supply the fuels that are necessary for

the operation of the modern energy system. The question that these companies must

now answer is whether or not they are able to assist in the organization of the

environment in which ships operate (Garrison, 2019). The main purpose of this report is

to know what is the future of oil industry connected it with transition of renewable

energy. The findings of the research presented in this report indicate that this may be

feasible, provided that the oil and gas industry take the necessary steps. This makes it

possible for the oil and gas industry to become a part of the "grand coalition" that the

International Energy Agency (IEA) deems to be essential in the fight against climate

change. Already, there are some companies engaging in this practice. This effort would

be significantly bolstered if a greater number of oil and gas companies committed

themselves wholly and entirely to it. The rising prices of developing technologies with

lower carbon emissions are a direct result of growing interest in the potential of

businesses to prosper over the long run.

THEORETICAL FRAMEWORK

The shift toward clean energy will have an effect on each oil and gas company,

the industry as a whole need to think about how to react to it. The competitive

environment of the sector is highly varied, and as a result, there is no singular strategy

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approach that is successful in all circumstances. The Seven Majors are the seven main

integrated oil and gas firms that have a considerable impact on the practices and

direction of the industry. These companies are receiving a lot of attention as of late

because of their prominence. The majors are responsible for 15% of production, 10% of

estimated emissions from industrial operations, and 12% of oil and gas reserves;

however, the business as a whole is significantly larger (Zakari, 2020). More than half

of the world's oil output comes from national oil corporations (NOCs), which are owned

by their respective national governments. National oil firms also hold an even bigger

share of the world's oil reserves. Even while there are few NOCs that are doing an

admirable job, the majority of them are not prepared to adjust to the shifting dynamics

of the global energy market (jeremy, 2020).

Figure 1 Future Path Of Oil Prices (Implied by Dec. 2015 Breakeven Inflation Expectations and Oil

Futures Prices)

Source: (Alzahrani, 2021)

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 To this day, oil and gas corporations have only invested a fraction of one percent

of their overall capital expenditure in areas that are not directly related to their primary

industry. There are currently very few indications that there will be a big shift in the

amount that businesses spend on investments. The reallocation of capital towards low-

carbon industries necessitates not only the development of new competencies within

companies, but also the identification of alluring investment opportunities in emerging

energy markets for companies that are eager to diversify their energy operations.

At the moment, individual companies spend around 5% of their budgets on shared

projects that are located away from the oil and gas supply core, with the majority of

their money going toward solar photovoltaics and wind power. In addition, several oil

and gas companies have expanded into new regions by purchasing existing

decentralized organizations. These companies specialize in areas such as power

distribution, charging stations for electric vehicles, and batteries. At the same time,

these companies have advanced creative work practices.

The acceleration of energy advancements may be anticipated if there is a

significantly vaster shift in share and large cash. There is a lot that can be done right

now by industry to lessen the impact that its operations have on the environment. The

degree to which a company is exposed to what the future holds is a significant test; yet,

this does not provide a sufficient justification for companies to "sit back and watch"

when contemplating the most important choices. Reducing emissions from nuclear, oil,

and natural gas activities should be everyone's primary priority, regardless of the course

that will be taken during the transition (Henry, Enoc sets out five-year strategy, 2016).

There are adequate and financially sophisticated potential chances to reduce the release

energy of transported oil and gas by limiting associated gas flares and CO2 emissions,

handling methane emissions, and coordinating renewable energy and low-carbon energy

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into new upstream and condensed petroleum gas (LNG upgrades). These steps can be

taken to reduce the amount of energy that is released when transporting oil and gas.

At the present time, 15% of the world's greenhouse gas emissions are attributable to the

process of extracting oil and gas from the ground and distributing it to customers.

Limiting the amount of methane that is released into the atmosphere is the most

essential step that industry can take to minimize these emissions, and it is also the most

cost-effective.

It is not possible for force to be the primary vector of change in an energy field.

At the core of the various approaches to reducing emissions is the obligation placed on

oil and gas companies to fulfill their customers' demands for clean energy around the

world. Even though electricity accounts for twenty percent of the world's total

consumption, the ever-increasing demand for energy services indicates that electricity

alone is not sufficient to manage energy transitions (Williams, 2020).

Figure 2 Brent Spot Price Average Quarterly After 1987 Average Annually Before

When it comes to assisting nations in achieving the environmental benefits of

utilizing fuels that produce less emissions, one of the most important steps that can be

taken is to cut emissions from nuclear oil and natural gas activities. In any case,

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organizations ought to promote interest in low-carbon hydrogen, biomethane, and

advanced biofuels, as these can transmit the benefits of a hydrocarbon energy

framework without the clean byproducts of fossil fuels. In addition, biomethane and

advanced biofuels have the potential to be produced using existing agricultural waste.

Within the next ten years, the investment in these low-carbon fuels would need to

account for approximately 15% of the total investment in the fuel supply (Paul, 2021).

The oil and gas industry will be absolutely necessary for the development of

several significant and capital-intensive clean energy technologies in their latter stages

of maturity. With the resources and experience available inside an industry, emission

levels from even the most difficult-to-reduce types of businesses can be dramatically

lowered. Wind power generated offshore, hydrogen with a minimal carbon footprint,

biofuels, and technologies that capture, store, and use carbon dioxide (CCUS) are some

instances of this. Large-scale engineering and project management capabilities, which

are well matched to the capabilities of large oil and gas firms, will be required in order

to scale up these technologies and cut their costs. This will require large-scale oil and

gas companies.

More than one-third of all funding for CCUS projects comes from the oil and

gas industry. This is because oil and gas operations account for three quarters of the

CO2 that is currently being captured by CCUS at big sites. If the industry is able to

collaborate with governments and other stakeholders to build viable business models for

large-scale investment, this might dramatically enhance deployment (Trinit, 2010).

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Figure 3 IEA Estimates of Future World Oil Prices

The upstream industry would undergo a dramatic transformation as a result of

the fast energy field. Even with streamlined processes, maintaining an interest in

upstream tasks is necessary; yet, the types of assets developed and the ways in which

they are supplied are undergoing major transformations. In the absence of any

investments, the annual fall in production from already-existing fields is larger than any

possible decline in world demand. This is because there are no new fields being

developed to replace the old ones. Consequently, interest in both traditional and several

emerging fields is still a component of the picture. Nevertheless, as a general rule,

business is decreasing, and the markets are gradually becoming more serious, those who

have minimal asset costs, strict expenditure control, and environmentally responsible

execution may be in the best position to benefit (Shi & Variam, 2017).

In order for businesses to effectively manage the transition risks associated with shifting

their focus from "oil and gas" to "energy," they are being forced out of their comfort

zones. Some of the largest oil and gas companies intend to transition into "energy"

companies in the near future. These "energy" companies will offer their customers a

diverse selection of fuels, electricity, and other energy-related services. This means

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expanding into areas such as electricity, for instance, where there is already a large

number of entities that specialize in the field.

Figure 4 Future Prices Remain Uncertain

(Jenefier, 2018)

Additionally, the financial characteristics and scope of the majority of low-

carbon investment opportunities are significantly different from the characteristics and

scope of traditional oil and gas projects (with the possible exception of offshore

projects). wind).

Because it outpaces oil in the rate of accelerated energy development as the

primary component of the buyer to make an effort, power presents a fantastic

opportunity for growth over the long term. This opens up a wonderful open door for

development. Investors will be keeping a careful eye on the ability of the sector to

achieve a balance between diversification and expected returns and dividends.

However, this opens the way to bigger and broader corporate emission reductions,

which in turn alleviates social constraints (Jordan, 2017).

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 The investigation into foreign currency reserves possesses an extensive and

varied chronicle on a global scale. The initial objective of Currency Reserves was to

ensure a consistent supply of local currency, while reserves were comprised of gold and

sterling in adherence to the gold standard. In order to attain a thorough grasp of

worldwide reserve analyses, factors such as unrestricted currency exchange and

overseas expenditures must be taken into consideration. (Khudhair & Ghadeer, 2023).

Iraq's advanced industrial sectors are in stark contrast to the underperforming sectors of

agriculture and manufacturing, which only account for a small percentage of the

country's GDP. As a result, any fluctuations in oil production and prices have a

profound impact on Iraq's overall economic output, rendering it highly sensitive to any

changes in oil prices within the region. This economic dependence has resulted in a

situation similar to the "Dutch disease," where a heavy reliance on oil revenues has

distorted the economy and reinforced a consumer-driven economic structure. Despite

ongoing reform efforts, this has led to a decline in emerging industries and increased

levels of unemployment in Iraq (Bekheet et al., 2023).

METHODOLOGY

The focus of this study is towards the usage of how energy resources are going to be

used and how much resources are required in order to make the oil future more secure

by allowing them to get conducted more appropriately with all big powers in the nation.

RESULTS AND DISCUSSION

It is likely that some of these variables, some of which have components that are

persistent, will more than outweigh any downward pressure on consumption that

becomes part of the new normal after COVID-19. Because major economies appear to

be focusing on replacing petroleum products, and because mass vehicle manufacturers

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have responded by focusing on replacing gas-powered motor vehicles with electric

vehicles in the medium term, this could be the last Supercycle for oil over time. As a

direct consequence of this development, the oil market will shift in order to become

more congruent with climate goals. However, economies that are dependent on oil run

the risk of undergoing a disorderly adjustment that has the potential to have far-reaching

effects and, in some cases, could cross their borders (Meng, 2017).

Oil Investment Crisis Despite relatively low oil prices, corporations that mine

and explore for oil have made a lot of money recently. This has led to a crisis in the oil

investment market. At the same time, they decreased their investments, possibly due to

the realization that the future held fewer opportunities for them. The number of wells

and oil fields producing oil is falling, and the reserves are running out very quickly.

Around the year 2014, there is no cessation in either the use of capital or the

replacement of oil savings (Kruckeberg, 2018).

The impact that COVID-19 had on the decline in investment was significant. For

instance, shale oil production, which has a shorter production cycle and is consequently

more sensitive to changes in investment, is currently expanding by a half a million

barrels per year, which is an increase from the two million barrels that were produced

annually before to the epidemic. Even though the recent announcement by the Biden

administration that they will prohibit drilling on federal land in the United States will

not have a significant impact on shale mining, it does demonstrate that the federal

government is becoming more antagonistic toward the oil industry.

The companies that produce shale have adopted an investment strategy that is

noticeably more conservative. Because of this, they will be able to run their business

with positive cash flows, which are cash flows that they previously used to spend on

investments. As a result of this reduction in investment, the function of shale as a swing

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product will be lessened, which also plants the seeds for a price Supercycle to take root

(Parsoya, 2020). On the other hand, the Association of Gasoline Sending Nations most

likely will construct a monster in order to combat the vertical cost pressure that is being

applied.

Discussion on peak demand There are a number of experts and large firms in the

oil market, such as BP and Shell, who believe that the global demand for oil reached its

highest point in 2019 at approximately 100 million barrels per day and will never reach

that level again because to the structural changes produced by the pandemic. This

perspective seems to lend credence to the idea that there should be a major cutback in

the quantity of oil that is used for transportation, including the production of jet fuel.

The number of passengers who canceled their flights in March 2020 caused a significant

drop in the use of jet fuel, which then rose to a higher level when restrictions on

traveling became less stringent (Kutlu, 2018).

Those who believe that consumption has reached its maximum level still

anticipate that gasoline consumption will increase around the middle of the year 2021,

despite the fact that prices have increased as a result of the inevitable lag that exists

between any demand-driven increase in oil production and the rise in refined products

to meet demand. With the advent of vaccines and the hope inspired by the imminent

reopening of economies around the world, it is anticipated that oil consumption will

continue to rebound, albeit at levels that are lower than they were before the pandemic.

This will effectively mark the peak of oil use (Larrison, 2019).

CONCLUSION

Those who believe that oil demand has already peaked, on the other hand, fail to take

into account the structural increase in consumption that will eventually outweigh any

drop that may be caused by COVID-19. There will be a rise in the demand for personal

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automobiles and air travel as a result of rising expectations for the comfort of day-to-

day life as well as the expansion of the working class in China and India. Therefore,

even if there is a slowdown in economic growth, the demand for travel will still be

supported by the large number of people who earn enough to afford a car. Because of

worries about the availability of charging stations, any transition to electric vehicles in

emerging countries like China and India is likely to take place at a slower pace than it

does in developed economies. Given that fuels account for half of the world's total oil

demand, the rate at which electric vehicles become widespread will be a significant

factor in determining future oil demand.

An oil price Supercycle is likely going to be supported – and kept alive for some

time – by the underlying growth in interest in oil, as well as the continued fall caused by

insufficient business. But would rising oil prices, as they have in the past, lead to

increased investment and a subsequent price crash?

The ripple effects of technological advancement might bring about a different

outcome this time. It is likely that the new technology that automakers are relying on to

support their goals to replace internal combustion engines with electric vehicles will

discourage considerable investment. Tesla, a company that manufactures electric

vehicles, is capitalizing its stock market value on the impending shift in the automotive

industry. Tesla's market value is substantially higher than that of traditional

manufacturers, despite the fact that traditional automakers produce a significantly

greater number of vehicles than Tesla. Because of this inconsistency, traditional

automakers have committed to making the transition from producing cars powered by

internal combustion engines to producing electric cars. As a direct consequence of this,

automotive manufacturers have made significant financial commitments to the research

and development of electric vehicles in an effort to increase their market share.

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