SPE 158270

The Role of the Oil and Gas Industry in the Transition Toward a Sustainable
World
Nicolás Strauss, Buenos Aires Technological Institute (ITBA)

Copyright 2012, Society of Petroleum Engineers

This paper was prepared for presentation at the SPETT 2012 Energy Conference and Exhibition held in Port of Spain, Trinidad, 11–13 June 2012.

This paper was selected for presentation by an SPE program committee following review of information contained in an abstract submitted by the author(s). Contents of the paper have not been
reviewed by the Society of Petroleum Engineers and are subject to correction by the author(s). The material does not necessarily reflect any position of the Society of Petroleum Engineers, its
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Abstract

Throughout the decades to come world’s population is expected to rise as well as the energetic, food and water demand. All
that, together with the everyday more rigid international environmental regulations alongside with the ongoing vertiginous
technological advancement, will induce to a restructuration of global economy on the inter-governmental and institutional
level in order to reinforce the fundamental pillars of sustainability: the environmental, social and economical. New energy
systems will be implemented and scarcity of resources will be more severe, leading the economy not only to shift but to adapt
to unconventional energy carriers and commodities. This combined with the targeted impact of these policies, concerning
living standard improvements, social inclusion and carbon mitigation among others, will raise new and demanding challeng-
es to face.
This paper intends to present an overview of the energetic playing field throughout the transition towards a more sustainable
world and the role of the Oil & Gas industry within this period. This article will identify and explain the challenges and con-
straints to be faced as well as the opportunities of undertaking ventures in this shifting environment. Also, the paper will
broaden the concept of Green Economy, main theme of the 2012 UN’s Conference on Sustainable Development, and present
strategies to develop an energy system to function and sustainably endure in time within the mentioned framework and ex-
plain why the O&G industry is a fundamental participant and a major “game changer” in this process.
Petroleum holds a key role in this transition as being the most widespread energy carrier and the most competitive element of
the current energy system. Therefore, the O&G industry has the opportunity to become the main “driver of change” and to
impulse a more prosper and sustainable energy network for the world.
It’s imperative that the O&G sector keeps a long-term perspective in order to remain in force and profitable. This paper pro-
poses some guidelines to do so and intends to raise awareness on the fact that sustainability is not only changing the way we
analyze a project but moreover the way we do business in the O&G industry.

Introduction

Einar Steensnaes, Minister for Petroleum and Energy of Norway, said during a speech given at the 2002 World Summit on
Sustainable Development and speaking about the Petroleum Industry’s perspectives for the future that “Increasingly, good
ethics is good business”. This simple and brief statement might be one of the clearest and most accurate ways of perceiving
where the Energy Industry stands today and how it is preparing to face the challenges that the decades to come will bring.
Today, the energy playing field is changing. Technology is advancing at the most vertiginous rate in history and it is only
likely to accelerate. Energy has become an integral and fundamental part of human modern society and, most probably, man-
kind’s dependence and demand of energy will dramatically increase throughout this century. So, how will the Energy Indus-
try overcome the complex challenges that ensuring energy security for such a fast moving world mean? The answer is right
there: with good ethics.
Sustainable Development is emerging as a new business model, capable of adapting and evolving in what promises to be one
of the most critical periods in human history. The 21st century will be a decisive point as not only the impact humanity has
generated on earth throughout its industrial stage will begin to show, but also the expected population increase will raise the
bar on the efforts to secure decent living standards for the world’s inhabitants. Sustainability will cease to be a plus to be-
come the governing factor in all aspects of every major industry and business, as there will come a point at which Sustainable
2 SPE 158270

Development will have become such a fundamental part of the economic and industrial model that it will be impossible und
even unprofitable to undertake any activity without a positive impact on sustainability. Moreover, the benefits this new model
offers are enormous and the opportunities vast. As it was said, good ethics is good business.
This paper will present an overview of the Energy Industry and propose strategies to face the coming decades’ challenges and
navigate the transition period towards a more sustainable world. First, a definition of Sustainable Development will be given
in order to explain this paper’s approach to sustainability. Then, applying Churchmann’s system thinking (1968) an Energy
System to facilitate the transition will be outlined. Also, the analysis will focus on the Oil & Gas (O&G) Industry as the main
driver of change and as a potential major player in the transition.

Sustainable Development

The concept of Sustainable Development (SD) was coined many decades ago and its use has extensively grown in the last 20
years as environmental protection gained larger prominence within the agendas of the corporate sector and governments,
mainly because of the rising concern on mitigating carbon emissions and climate change driven impacts on Earth’s ecosys-
tem. It can be observed that every day more and more the issue of achieving SD and engaging into more sustainable practices
and activities is becoming increasingly relevant in every sector of the global framework, moving also beyond the technical
playing field and scoping the legal, social and political implications of undertaking sustainable projects and policies.

A Formal Definition of SD

There are many ways of defining Sustainable Development and it’s interesting to note how many different ways of interpret-
ing sustainability exist without compromising the concept’s overall meaning, but approaching it in a particular way according
to the source and the author. To follow, a few formal definitions of SD will be presented:

“Sustainable development is development that meets the needs of the present without compromising the ability of future
generations to meet their own needs”. (World Commission on Environment and Development 1987)

“[…] Sustainable development is often thought to have three components: environment, society, and economy. The well-
being of these three areas is intertwined, not separate”. (McKeown 2002)

SD is often misunderstood as purely environmental and ecological, leaving aside the many implications regarding economi-
cal, social and political aspects that implementing sustainable policies may have. SD is a structure supported by three pillars:
the economical, the social, and the environmental. A sketch is presented below (Fig. 1).

ECONOMICAL ENVIRONMENTAL
PILLAR PILLAR

SOCIAL
PILLAR

Fig. 1
SPE 158270 3

The only way such structure can be stable is to be equitably balanced on top of the mentioned three pillars. If one of the pil-
lars size is compromised then the whole structure becomes unstable and likely to fall. The three pillars are equally relevant to
maintaining the structural stability, therefore, in order to achieve and sustain SD, a solid foundation over the economical,
social and environmental aspects must be built.
Also, a formal definition of SD needs to be coined so that it serves to the analysis carried out and represent how SD will be
viewed, approached and interpreted throughout this paper. That definition should be broad enough to encompass all the as-
pects that were just mentioned, but at the same time simple and concise in order to allow a multi-disciplinary application of
the term while still following a common overall objective. SD in this paper will mean only one thing: to endure in time. Alt-
hough a very brief definition, it has many implications. Enduring in time means that the policy, venture or action undertaken
must remain in force and valid throughout the period of time it was devised to exist. But the only way for it to survive in time
is to be able to deal with the external and intrinsic constraints that may threat some of the pillar’s breadth. A project, a meas-
ure, or a strategy, won’t be able to endure in time, hence be sustainable, if it is not balanced and well grounded on a solid
base over the three fundamental characteristics of Sustainable Development. That is the way sustainability will be approached
throughout this paper.

Sustainable Projects

Every activity, in order to be called sustainable, needs to have a triple bottom line, meaning that it has to involve a positive
impact on the three pillars of sustainability (Social, Economical and Environmental). A project is a collaborative venture,
where resources are put into action with the aim of accomplishing a goal while at the same time dealing with time and in-
vestment constraints. Also, a project needs to have a way of interpreting results and monitor its development through time in
order to assess the path devised to achieve the goals; these are the measurable outputs, usually considered solely as the mone-
tary revenues. But a project could be based on different kind of outputs depending on its nature, for example, projects can be
based on generating welfare over society or the environment, like for example the ones that NGOs undertake; but, regardless
of their outputs, projects share one aspect in common: profitability. A project needs to be profitable, often at the expense of
sacrificing the breadth of the remaining two pillars of the structure, otherwise it would never be possible to undertake it and
hence the social and environmental positive impacts of such project would never take place. Therefore, remembering the
definition of sustainability given in the previous item, a project must be able to endure in time and remain in force in order to
be defined as sustainable. This can only be achieved by properly balancing the three pillars of sustainability in order to secure
the stability of the structure. All the three pillars are related and should be taken for account with the same relevance because
if one on them gets weakened then the whole structure will be compromised, and therefore it (the project) will become unsta-
ble and incapable of enduring through time. Another condition a project must fulfill to be defined as sustainable is to be un-
dertaken in such a way that the measurable outputs are maximized to the point of generating the largest positive impact pos-
sible at the current stage of development and with the economic limitations it is subject at that time. The just described state
of operation is called the economic limit and it will be the aim of the system to reach that status. Also, once the economic
limit is achieved, it will theoretically become the system’s natural state of operation; this will be broaden later on in the pa-
per.

A Sustainable O&G Industry

Some may argue that the term “Sustainable O&G Industry” has no sense at all and that it even presents a contradictory na-
ture. How can a Hydrocarbons based industry be awarded the title of “Sustainable” with all the negative issues it conveys
regarding the environmental impact of fossil fuels exploitation and consumption? The Energy Industry, and in particular the
O&G Industry, have a triple bottom line, therefore, sustainability is, by definition, achievable. If the focus is set on improving
the outputs’ impacts and sustaining them through time, then the economic limit can be reached. The O&G Industry has the
potential of generating a substantial triple bottom line positive impact and of playing a major role in the coming decades’
energy scenario. Sustainability, as will be explained in this paper, will be the logical step to take towards a more profitable
and efficient operation of the Energy Industry, and the O&G Industry will be one of the drivers of that process.

An Energy System

Mankind generates and utilizes energy in various forms and in order for it to reach the wide range of end and intermediate
uses intended, a series of processes of conversion, transmission and distribution must take place. Delivering energy is a com-
plex task tied to both technological and non-technical constraints inherent to where and how the activity takes place. We will
represent the world’s Energy Industry as a sequence of interrelated processes that shall be called the Energy System. In order
to understand and further on sketch it we will apply the Systems Approach proposed by Churchmann (1968).
4 SPE 158270

System Definition and Thinking

A system could be formally defined as a group of interacting, interrelated, or interdependent elements that form a complex
whole that exist within a defined set of boundaries and lay on a measurable and observable environment. Nevertheless, in
order to perform the intended study we need to broaden the concept and identify the specific characteristics to be taken for
account. Churchmann states a series of basic considerations to be kept in mind when thinking about what it actually means to
apply the system thinking approach:
i. The system’s objectives.
ii. The system’s environment.
iii. The components of the system; their activities, goals and measures of performance.
iv. The management of the system.
Moreover, in order to commence sketching the system, first one must to be able to view it from a larger perspective than as
the sum of its elements and to appreciate the deep interconnection between them as the system’s driving engine, in other
words a system must be seen as a whole. This might be better understood by applying the first consideration of the system
thinking for an Energy System. As mentioned before, the system is larger than the sum of its parts, and therefore an Energy
System is larger than the firms, markets or even the economy forged within that governs its operation and further develop-
ment. Hence, the objective of the system, which will serve as guiding idea for the Sub-Systems within its boundaries, is the
fundamental expression of the system’s purpose that in this case is: the generation of energy from a given raw material.
Nevertheless, as will be explained further on in this paper, this is not entirely true as the system becomes more complex and
its environment changes and adds on more variables to compromise the system’s operation. External factors may jeopardize
the system’s sustainability (or its persistence in time, as previously defined), such as new regulations on environmental pro-
tection or shareholders pressure on engaging into more CSR activities, and intrinsic issues like for example the all time gen-
eral need to increase profitability of the business, may lead to a re-definition of the system’s overall objectives and conse-
quently impacting differently over the pillars of sustainability. Also, it’s necessary to take for account that this is an abstrac-
tion of the system that will gain complexity in order to be able to represent a real Energy System in order to introduce some
guidelines and characteristics about the framework of study in this paper. To say that the overall objective of an Energy Sys-
tem is to generate energy from a given raw material could sound unrealistic and even redundant, but it’s a mandatory step
towards a proper understanding of how the system may shift, react and adapt within another context and set of constraints.
The next basic consideration of Churchmann’s system thinking is the Surroundings of the System or, in other words, the fixed
constraints (Churchmann also uses Environment to refer to the Surroundings but it might become confusing and repetitive to
keep using the word Environment as we will use it also throughout this paper when speaking about the ecosystem). To set up
a system we first need to draw up its boundaries in order to determine what lies “outside” of it and what lies “inside”. Wheth-
er one’s field of study is thermodynamics, where a system is built by defining a macroscopic region of the universe and sepa-
rating it from its surroundings by a notional or real boundary and specifying the nature of the exchanges that are allowed to
occur across its boundary, or analyzing a firm’s management and control system, where for example a fixed budget that can’t
be changed by any of the system’s activity is said to be a given constraint and therefore part of the surroundings, the system’s
Surroundings is a very important concept because it not only escapes the system’s control but it also determines in part how
the system will perform. Churchmann proposes a kind of “thong rule” to identify if a set of constraints is or isn’t effectively
in the Surroundings by asking “Can I do anything about it?” and later “Does it matter relative to my objectives?”, if the an-
swer to the first question is “No” but to the second question is “Yes”, then “it” is in the Surroundings.
In order to set the boundaries to define an Energy System’s Surroundings it’s necessary to identify the set of constraints that
influence the energy industry, measure their cross-boundary interaction and determine how they control the system’s perfor-
mance. As it was previously defined, an Energy System will be based over the three fundamental pillars of sustainability (the
economical, the environmental and the social) and therefore the constraints (both intrinsic and external) that will condition
the system’s endurance in time are the ones that may compromise the integrity of the founding pillars. It’s clear that the En-
ergy System being sketched in this paper will be governed by an interlinked set of economical, environmental, social and
political constraints, but it’s necessary to outline the boundaries in order to identify which of these constraints are “inside” the
system, and therefore intrinsically imposed, an which of them are part of the Surroundings.
Starting with the environmental pillar, the main factors that condition its structural integrity are the public’s and govern-
ment’s rising concern on mitigating carbon dioxide (CO2) emissions to slow down and revert global warming, eliminating
the impact of energy related activities on the local and global ecosystem, the global tendency (in both the public and private
sector) to extend the use of renewable technology, shareholder’s pressure and involvement on engaging into activities with a
more positive social impact and legal regulations concerning environmental preservation in the global and local scale. This
set of constraints depend on factors that are outside an energy firm’s scope of action and are extremely relevant in terms of
conditioning the sustainability of any project undertaken by such firm; so, in other words, the way an energy firm’s system
interacts with this given set of constraints will determine part of the structural integrity of the system’s sustainability pillars.
Therefore, the environmental set of constraints is in the Surroundings.
To aid in this reasoning we might as well rely on Churchmann’s “thong rule” questions and ask for example: Can we, from
an energy firm’s point of view, influence in some way how the public, activist groups, the scientific community and govern-
ments push forward in the creation and tightening of regulations, rules and laws to restrict and monitor industrial activities in
SPE 158270 5

order to mitigate CO2 emissions? Can an energy firm ignore or bypass a government’s decision to establish carbon fees and
re-envision a nation’s energy mix by extending the use of renewable energies? The answer to both these questions is “No”
and, following the next step of Churchmann’s “thong rule”, it does matter to a firm’s objectives and long term goals. What is
meant to be shown is that an Energy System is surrounded by a dynamic set of constraints that force the system to adapt and
in some cases restructure itself in order to achieve a perfect fit within the newly established Surroundings. The firm has to
comply with the new fixed constraints as they threaten the sustainability of their business, but that doesn’t have to be seen as
a disadvantage but more like a strategic opportunity to remain in force and increase the firm’s profitability and endurance
over time. Nevertheless, the real challenge remains on how the firm will modify, add or take away elements of its system to
achieve the desired interaction with the system’s boundaries.
Following this reasoning, a wide range of economical, social and political constraints exist to condition the system’s perfor-
mance; and in order to determine whether they lay in the Surroundings or inside the Energy System, an independent analysis
needs to be made on each set. It would be appropriate to add that identifying where each set of constraints belong is very
important for the study intended in this paper given that the system will become more complex as elements are added and as
the O&G Industry becomes focus of such study. We will continue this analysis in the next item of this section where the
Energy System will be sketched.
The next of Churchmann’s considerations are the Components of the system. He states that the Components are the ones that
take specific actions in the system, starting from the general reservoir or pool of resources, i.e. the means that the system uses
to do its jobs, perform its activities and achieve its goals. Resources are inside the system as they can be used and changed for
the system’s own advantage. They shouldn’t be confused with the natural resources or the system’s feedstock; in fact the
resources are measured in terms of money, man hours and equipment. Such combination of Components (like for example
investment, human capital, assets and equipment) is what comprises the system’s Elements, as it will be seen in the next item
of this section. The constraints that may affect the system’s performance could be both at the Element and Component level,
such as for example local and international trade regulations and HHRR related issues respectively.
The last of the system thinking considerations is the Management. This is one of the most important aspects of the systems as
it is essential to ensure the system’s efficiency and endurance in time. As stated by Churchmann, the management part of the
system must receive information that tells it when the concept and direction the system is moving towards is erroneous and
must include steps that will provide for a change. It is the role of the Management to deal with the generation of plans, out-
line the overall objectives, plan and sketch the interaction with the Surroundings and manage the utilization of the system’s
resources and components.
Churchmann’s System Thinking is one of the theories that can be applied to sketch and operate a system of any kind. The
study this paper focuses on outlining an Energy System by following the previously mentioned considerations, to ultimately
identify and analyze the place occupied by the O&G Industry within that system. In the next item of this section, an Energy
System will be presented.

The Energy System

An Energy System is where the process of transforming a raw material into the various forms of energy required for the
many end-uses that exist takes place. If seen from the outside as some kind of “black box”, the system could be seen as an
input-output process that takes place in order to achieve the overall objective of the system, within the previously defined
Surroundings and enclosed by a pre-established set of boundaries (Fig. 2).

SURROUNDINGS
ENERGY SYSTEM

INPUT OUTPUT

BOUNDARIES

Fig. 2

What occurs inside the Energy System is governed by its intrinsic properties, also allowing and defining the kind interaction
that happens with the Surroundings trough the boundaries.
As mentioned before, the system is governed by an Environmental, Social, Economical and Political set of constraints that
could lay either in the Surroundings (outside the system, unchangeable, the system needs to change to face them) or inside
the system (subjected to intrinsic changes of the system). But before proceeding to identify such constraints, it’s necessary to
6 SPE 158270

outline the internal structure of the Energy System and the process that takes place within to achieve the overall goal of gen-
erating energy from a given raw material. As stated before, the combination of the system’s Components are called Elements,
and these will structure its operation in order to undertake the required processes, interact with the Surroundings and achieve
the system’s goals in the most efficient manner.
An Energy System is comprised by four interdependent Elements; these are Production, Storage, Distribution and Consump-
tion (Fig. 3), which shall be examined in depth further on.

SURROUNDINGS
ENERGY SYSTEM

INPUT OUTPUT

BOUNDARIES

Fig. 3

These Elements represent the series of processes the feedstock goes trough until it reaches the end-user in the form of energy.
This is one representation of how the Energy Industry is structured and how the system created within functions in order to
undertake projects and achieve the system’s goal. The Elements will be broaden further on when the case of an Energy Sys-
tem for the O&G Industry is analyzed and, once the concept is introduced, how to apply it for different energy generation
systems will be explained.
Having now sketched the intrinsic elements of the system, it’s possible to move forward in the analysis towards listing the
constraints lying in the Surroundings. An energy project, as it was previously defined, has to generate a positive impact on
the three pillars of sustainability in order to be sustainable and endure in time. Therefore, by analyzing the outcome of the
Energy System in terms of the mentioned positive impacts and related to the way the inputs transform throughout it and in-
teract with the Surroundings, it’s possible to identify the constraints the system will be governed by. We mentioned the Envi-
ronmental constraints in the previous item of this section to give an example of the System Thinking process, concluding that
they are in the Surroundings as the system itself can’t do anything about it besides following their change over time. Envi-
ronmental demands are governmental and public driven and will continue to strengthen throughout the following decades,
conditioning the Energy System’s sustainability throughout the transition. Below they are listed again:
 CO2 mitigation.
 Extend the use of renewable and widen their use in the system in a way they contribute to its operation.
 Reduction and further elimination of negative environmental impacts in the area of activity of the energy project.
 Sustainable management and exploitation of natural resources.

Next, we will continue the analysis with the social set of constraints. The social factor should be taken for account in every
major energy project as it is an issue that has been gaining major prominence during the past decades in every industrial firm
and it’s expected to become even more relevant in the coming decades. Operational safety and hazards reduction, hiring of
local workers, aiding the community where the activity takes place and other CSR activities are a major priority in most
firm’s agendas nowadays and particularly in an O&G company. Examples of that can be seen almost in every major O&G
company and not only of CSR investment, but also R&D in renewable technology, promoting education in the countries
where they operate and culture preservation in the oilfield areas. Moreover, for the coming decades another set of variables
will enter the equation regarding the social implications of the energy industry, these are related to United Nation’s Millenni-
um Development Goals, outlined in the Millennium Declaration at the 2000 UN Millennium Summit, of which one of the
goals is to eradicate poverty and increase living standards in developing countries. But why would this affect the energy
business? Energy is a basic need in modern mankind and a large part of the world’s population lacks access to it in a safe,
clean and consistent manner, especially in developing countries and poor areas of the world, therefore it becomes one of the
indicators to draw up the poverty line. This conditions the design for the next decades’ Energy System because UN’s regula-
tions will strengthen towards the achievement of the mentioned goals and because social inclusion and spreading of energy
availability will become major factors on a firm’s reputation and, therefore, on stakeholders’ satisfaction. This set of con-
straints is outside the system as they are in the Surroundings and the system can’t do anything about it besides following and
interacting with such constraints. Thus, the social constraints that will affect the Energy System are:
 Reduction of poverty in developing countries and poor areas of the world.
 Ensure clean and safe access to energy for the entire world’s population.
SPE 158270 7

But why are these constraints? They are called this way because they are factors the system will have to deal and coexist with
in order to prevail in time. As the world shifts towards a more sustainable future, on which the “face” of energy is expected to
change, population increases will demand a new way of managing natural resources, and where scientific and technology
advancement will bring new opportunities for civilization to take the next leap forward in its development, the needs of the
world will merge with the goals of the industry; in other words, it will be more profitable to be sustainable that not being it,
as by not being sustainable it will be impossible to sustain any business, venture or industry in the long term. Also, a firm
could benefit of engaging into projects in a sustainable manner as it’s logical to think that, in order to promote sustainable
practices, governments and the UN might establish subsidies and preferences when granting lands for energy related activi-
ties, and also the fact that, when regulations regarding the non-fulfillment on social and environmental demands become
more global and gain weight, firms that undertake their projects complying with the laws regarding SD will avoid fines, gain
public acceptance and reputation, and even also access to new markets and position themselves better in the worldwide ener-
gy business.
The last set of constraints relevant to the study of this paper is the Political and Economical. These might present a higher
complexity than the previously mentioned as they span intrinsic and external variables to the system, making this set part
outside and part inside the system. Also, both the Political and Economical constraints will be analyzed as one only set, as
they are closely related and may depend upon the same factors. To follow, the basic aspects of these constraints will be ana-
lyzed for an Energy System.
Energy is a major topic in the worldwide governmental agenda not only for its strategic significance but also for its political
and economic power. One of a nation's prime concerns is to ensure energy security for the future, thing that often can only be
achieved by importing energy from other nations, therefore becoming vulnerable to price and offer fluctuations many times
driven not only by plain availability but also by political maneuvers. For example, the 1973’s Organization of Arab Petrole-
um Exporting Countries (OAPEC) embargo in response to the U.S. decision of re-supplying the Israeli military during
the Yom Kippur war, rising oil barrel prices and disrupting international relations between the Arab states and the U.S. An-
other factor that may compromise the system’s sustainability and involves political issues is the resources sovereignty, as
they are of national interest for a country and, in order for a foreign firm to obtain the granting of the site where such re-
sources are, national regulations on exploitation and trading must be complied. The factors previously mentioned influence
the system’s operation in a way that can’t always be predicted and often go beyond its scope, therefore they are outside the
system. But there’s another variable in this set of constraints that is created as consequence of the previously mentioned,
which is the system’s economic profitability. Energy production of any kind demands a large amount of investment and
planning aimed at reinforcing the economic pillar of an energy project for it to prevail in time. The profitability factor is re-
lated to the previously mentioned external Economic and Political constraints because the planning of a project depends
largely on speculation regarding energy prices, availability of resources and the political and legal framework where the ac-
tivity will be developed. But, why is profitability an “inside the system” constraint? It is so because profitability margins are
determined by the firm’s stakeholders and management. These are, if following the premise formulated in the item Sustaina-
ble Projects of the previous section where it was stated that a sustainable project is undertaken at the economic limit, the
conditions necessary to support the firm’s structure, generate the required revenues to add value to the company and allow at
the same time reinvesting in assets and technology, therefore keeping the engine of the system in motion.
We’ve sketched the series of Elements that comprise an Energy System and the processes that take place inside it as well as
the variables and constraints that govern its operation and development. Such Energy System is meant to represent the Ener-
gy Industry as a whole, but it’s also possible to do so with every energy generation system as they, regardless of which, can
also be modeled by the proposed chain of elements (Production, Storage, Distribution and Consumption). The different ener-
gy generation methods that exist forge also Energy Systems of their own that by linking and interacting with themselves and
the Surroundings comprise the overall Energy System. Therefore, it’s possible to consider them as Sub-Systems of the over-
all Energy System. One of those Sub-Systems and main focus of this paper’s study is Hydrocarbons (HC) that will be ana-
lyzed in the next item.

Sub-System: Hydrocarbons

Industrialization of mankind was given largely because of its ability to discover new sources of energy, develop the technol-
ogy required to exploit them and identify new uses and applications for the energy produced. Throughout the last two centu-
ries humanity has vertiginously modernized by implementing new technologies on transport and communications that
marked a change not only regarding its industrial capabilities but also on how people connect and relate. This breakthrough
was mainly lead and allowed by the implementation of the Hydrocarbons and Coal Systems, and (introduced mainly during
the second half of the 20th century) the Nuclear and Renewable Systems.
The HC and Coal Systems played a major role in achieving this stage in human technological evolution, as they fueled the
Industrial Revolutions and were the main driving force behind lots of technological improvements that found, over time,
many other applications. Such changes in human behavior and habits demanded the forging of a new Energy System that
evolved till this day’s multi-source combined system, comprised by many interlinked Sub-Systems of which HC is one of
them. To follow, the system analysis and thinking will be applied in order to sketch the HC System, detail each of its Ele-
ments (Production, Storage, Distribution and Consumption) and their roles within it.
8 SPE 158270

Petroleum and its derivates has been used by many civilizations mainly for heating and lighting throughout history, but the
first commercial use of oil was given in the 1850’s by Ignacy Łukasiewicz’s discovery of the process to distill kerosene from
petroleum to provide a cheaper alternative to whale oil. Consequently, the demand for oil as lighting fuel quickly grew in
North America and other parts of the world, giving birth to modern exploration and commercial production. Petroleum ex-
traction has evolved from wooden made rigs and shallow wells to deep-water drilling platforms, state of the art seismic ex-
ploration technology, the latest remote monitoring control devices and reservoir simulation software. Petroleum production
begins by locating a reservoir, estimating reserves, acquiring data to assess economic exploitation, devise field’s production
plan and undertake the oilfield’s development project (drilling campaign, well completions and surface facilities) then fol-
lowed by the exploitation stage (assisted lift devices if needed, like for example electro-submergible pumps, well stimulation,
hydraulic formation fracturing, and enhanced recovery initiatives). Next, when crude oil reaches the surface, a series of
treatments take place to separate gas, water and petroleum in order set them within specification to move up to the next stage
of the process that consists of refining the produced oil and gas, resulting in the final product available for commercialization.
This simplified chain of processes that was just described is what comprises the HC System.
The outputs of the Production Element of this system are treated gas and crude oil, and now, as they exit the Element, we’ve
come to the point of placing them in the system as tangible objects; therefore, in order to do so, the concept of Energy Carrier
must be introduced. According to ISO 13600, an energy carrier is a substance (energy form) that can be used to produce
mechanical work, heat, or to operate chemical or physical processes. In the field of Energetics an energy carrier corresponds
only to a form of the energy input required by the various sectors of society to perform their functions. Examples of energy
carriers include liquid fuel in a furnace, gasoline in a pump, electricity in a factory or a house (ISO 13600:1997). Therefore,
the previously mentioned outputs of this Element are in fact Energy Carriers that follow different paths throughout the system
in order to reach the consumer and fulfill its particular end-use. Nevertheless, the Energy Carriers introduced in this system
will represent, in pursuit of practicality and simplicity, the two sectors the HC Energy System is designed to comply with,
being them the Transport Sector and the Energy Generation Sector. In other words, one share of the HC produced will direct
towards satisfying transportation needs and the other share will aim to generate energy in the form of electricity. The Carrier
for Transport will directly enter the Storage Element since it already is the final product for refining and commercialization,
but the Carrier for Energy Generation will first need to undergo one more process of conversion, where the fossil fuel and the
natural gas produced are used by a power generation facility to produce another Energy Carrier: Electricity. At the end of this
section, Figure 4 shows the system sketch.
The arrows going out of the Production Element are both the Energy Carriers. Note that the area above the Elements (see Fig.
4) corresponds to the processes involved in the Transport Sector, whereas below it refers to the Energy Generation Sector.
The next Element of the system to be explained is Storage. Here “Storage” doesn’t mean that the energy has to be saved for
later commercialization and usage, in fact the system is designed to sustain a constant flow of energy, but it refers to the way
energy is stored over time and the implications that might have on the system. Therefore, it has to be thought as the amount
of energy stored in a physical space over time. Many issues raise up in this stage of the Energy System as storing energy in
an effective and profitable way is key in order to ensure energy security for the future and erase energy supply’s intermitten-
cy, which will be one of the major constraints the Energy System will face once it begins to introduce renewables. Storage of
HC products have little opportunity to impact on the system’s overall sustainability as there’s not much that can be done for
HC’s to be stored for longer periods of time without building conventional infrastructure (tanks, pipelines) and there’s not
much chance of innovation that would cause that the same amount of energy that’s stored in a definite volume of HC to be
consequently stored in a smaller volume. It is for that reason that the time the HC exists as such on the surface is calculated in
order for it not to over accumulate and therefore fit to the existing infrastructure. The system that goes from the wellhead to
the dispatch tanks of the refinery is designed to handle a finite volume of HC; therefore, if for example the volume of HC
tops the system’s capability, there would be no other option than to either cut down production, re-direct the HC to other
available facility (that could cause a loss of efficiency and productivity), or to build more storage infrastructure. Also, as
mentioned before, the amount of energy stored within the HC is unchangeable and will be a decisive factor in the Distribu-
tion Element because, for example, the amount of energy from HC that fits inside an oil carrier ship, a tank truck or a pipeline
cannot be changed unless the dimensions of such transport means become larger. That’s not the case with electricity as there
are many technological advances that alongside with Intelligent Transmission Grids designs promise to mark a breakthrough
on how electricity is stored and transmitted. For example, the large scale implementation of high-voltage DC transmission
lines (HVDC) and superconducting electricity transmission lines, having both of them much lower losses than the current
high-voltage AC networks. Also, it might be possible in the future to economically implement converting electricity to other
kind of carriers in order to store the energy produced for a longer period of time and to keep as either a strategic reserve or as
contingency in case of shortage or expected intermittent supply; one example of that might be hydrogen production from
electricity that, although currently possible, has not yet been pushed to the economic limit and requires more R&D in order to
become a profitable solution. Therefore, it is expected to see that electricity storage and transmission might be one of the
factors that could raise the systems sustainability in the future. The HC system is presented below (Fig. 4).
SPE 158270 9

SURROUNDINGS
HC SYSTEM
TRANSPORT SECTOR

HC

INPUT OUTPUT

HC
POWER ELECTRICITY
GENERATION
FACILITY
ENERGY GENERATION SECTOR

Fig. 4

We’ve outlined what goes on inside the HC System and the path the two main energy carrying vectors follow throughout it,
now, following Churchmann’s considerations, the sketching of the system will be completed.
The first thing to solve is the objective of the HC System that can be outlined by the system’s input and output. It was previ-
ously defined for an Energy System that its goal is “the generation of energy from a given raw material” but now the goal
needs to be re-formulated for the case of the O&G Industry. The input is simple investment of capital, but the output gets
more complex as it is both revenues and a vector that symbolizes the overall impact of the system through any of its stages. It
is meant to represent that, as mentioned and described before, the system interacts with the Surroundings and, by doing so on
the quest to fulfill its goal, one of the measurable and observable outputs of it will be the environmental, social and economi-
cal impact that the system causes. Therefore, moving back to the definition of a sustainable project, the system needs to be
conceived in order to generate a positive impact on every measurable output to be able to endure in time. Thus, by taking this
for account, it’s possible to define the objective of the HC System:
 To generate energy from underground stored hydrocarbons in the cleanest, safest and most profitable way and dis-
tribute it in every of its required forms as cheap and comprehensively as possible.

It is by following this objective that the Elements forge the system and consequently how it interacts with the Surroundings.
It’s the task of the Management of the system to monitor and control the system’s direction and apply the necessary changes
when for example a constraint in the Surroundings varies or gains weight. Later in this paper we will assume the role of man-
agers of the HC System in order to present strategies on how to navigate through the transition stage that the following dec-
ades will mean to the O&G Industry.

The Energy Playing Field

The overwhelming majority of our current energy needs are met by the combustion of carbon-based fossil fuels. The system
that fulfills that purpose is based on the generation of primary energy starting from large reservoirs of coal and hydrocarbons
that are extracted through a series of techniques that cause heavy, and sometimes irreversible, on-site effects. Once outside
the reservoirs, the energy carriers (crude oil, gas or coal) transform into thermal, chemical, mechanical or electrical energy
through combustion. The system in which these processes take place does not allow nor is designed to store the energy within
the carriers for long periods of time. The conversion processes take place in large industrial facilities and distribution centers
(power plants, refineries) that are meant to supply entire cities or regions. Distribution networks are built (power lines, elec-
tricity grids, transport by vehicles, pipelines) to take the energy from the central conversion centers (often located closer to
the end-user than the original reservoir where the energy was stored in-situ) to the consumers (household, industrial and
transportation demand). This system has a main disadvantage: it follows a centralized model of production and distribution of
energy, which causes the appearance of gaps that decrease the overall efficiency of the system. These gaps represent the
voids of energy in the system, regarding distribution and supply, which are located away from the centralized conversion and
distribution centers and, in order to be filled, imply transmitting energy over long distances, resulting in a substantial amount
of energy lost and a significant investment in long range transmission infrastructure and maintenance. For example, these
gaps can be small cities or even nations that have no indigenous supplies to meet their own energetic needs. It will be seen
further on in the paper that these gaps can be eliminated by decentralizing the system by implementing smaller scale energy
production systems, the introduction of more storage lasting energy carriers, and complementary energy technologies and
arrays.
10 SPE 158270

One other characteristic of the present Energy System is its failure to introduce renewable technologies as an integral and
large scale player, being reduced to interpreting the role of complementary energy sources. This is largely caused by such
technologies’ stage of development; but, as will be seen later on, if R&D is invested to increase renewables’ competitiveness
in relation with fossil fuels, a large contribution can be provided to the enhancement of the system’s outputs and the elimina-
tion of gaps.
The energy playing field of today has also another major disadvantage that is related to the energy economics and costing.
For example, gas and coal prices track to some extent the oil prices although they are not competing fuels. Also, global cost-
ing of energy and resources remains inequitable as it doesn’t include subsidies, environmental and social impacts, and other
long term and short term externalities.

A Sustainable Energy System

What does it really mean for an Energy System to be sustainable? It’s a widespread thought that Sustainable Development
can only be achievable if energy generation is 100% renewable, leaving no room for conventional energy generation and
fossil fuels. As it was explained before, Sustainable Development encloses by definition many other aspects and a complex
relation between environmental, social and economical issues. Also, many of the renewable technology options require still
much R&D for a large scale implementation in the medium term and, if occupying the largest share of the world’s energy
matrix is indeed the ultimate target, many constraints regarding such technologies must be addressed. But, how is Sustainable
Development achievable if not by an all-renewable energy matrix? It is possible by, remembering the definition of SD given
in this paper, outlining the Energy System to be able to endure in time and adapt to a shifting environment while generating a
constant and growing positive economic, social and environmental impact. In order to do so and to still be able to keep up
with the rising energetic demand, the Energy Industry needs to be pushed to the economic limit in every applicable energy
generation system and generation method that holds implementation potential.
The task for the coming decades will be to implement those methods as a system and identify the role they may serve within
the overall system and devise ways for the Sub-Systems to complement themselves and facilitate the entrance of an undevel-
oped one that holds potential of becoming a major player. But the biggest challenge will be to plan and undertake such ven-
ture while still sustaining a positive impact on the overall system’s sustainability. To do so, the Management of the overall
system has to monitor the measurable outputs and then set the guidelines to re-structure it on the Sub-System level. Also, the
Management has to handle the addition of new Sub-Systems and facilitate their growth according to their potential. One more
consideration to be taken for account, the Overall System interacts with the Surroundings and by doing so sets the environ-
ment on which the Sub-Systems will be immersed, so in other words impose the edge conditions for the cross-boundary in-
teraction that the Sub-Systems will have with the Surroundings. Nowadays Overall Energy System could be sketched like
this:

SURROUNDINGS
OVERALL ENERGY HC SUB-SYSTEM
SYSTEM
REVENUE

COAL SUB-SYSTEM
$$$

NUCLEAR SUB-SYSTEM IMPACT

RENEWABLE SUB-SYSTEM

Fig. 5

The only purpose of this graph right now, as simple as it might look, is to reinforce the argument that energy should be seen
as a whole and that, in order to achieve a sustainable a secure energy supply for the world, all the Sub-Systems need to com-
plement each other to pursue the same objective.
Another important aspect regarding the need of the Sub-Systems to complement each other is that, by doing so in the correct
manner, problems like intermittency in supply, caused for example by some renewable technologies like solar panels and
wind turbines, and the disadvantages of centralized production and distribution, would be avoided. Decentralization of ener-
gy, as will be seen further on in the paper, is one of the key issues to address in order to achieve a completely sustainable
system because it would cause the largest impact as it would increase the worldwide distribution grid’s efficiency and widen
energy availability to parts of the world where, till this day, supplying energy is a complex task.
The system the Energy Industry has today is not yet sustainable by the definition of this paper; therefore strategies to achieve
such condition will be presented further on.
To follow, a definition of a Sustainable Energy System will be presented and special considerations will be identified:
SPE 158270 11

 It must generate a constant and growing positive social, environmental and economic impact while at the same time
meet the expected revenues to sustain the system’s operation, add financial value to it, and allow the system to en-
dure in time.
 It must be devised to hold a decentralized supply and production of energy.
 Resources constraints must be sorted and exploitation of such must be done in the most efficient manner.
 The system must operate within a global economy structured to sustain the system and a framework to promote free
trade of energy and free exchange of technology must be devised.

The last of the listed guidelines refers to the UN’s definition of Green Economy and Trade and the Institutional Framework
for Sustainable Development (Rio+20 Issues Briefs No. 1, 2011), main themes of the 2012’s Conference on Sustainable
Development in Rio de Janeiro, Brazil. To follow, those concepts will be broadened and their relevance for the paper’s analy-
sis explained.

Trade and Green Economy

The concept, besides what the word “green” may suggest, is about the forging of a global economy that offers the opportunity
to improve trade governance on the international and domestic level to ensure positive contribution in achieving Sustainable
Development and poverty eradication. This re-envisioned global economy comes in response to the greening of markets,
particularly the energy market as renewable technologies begin to arise and gain competitiveness, and the fact that develop-
ing nations have either already become major players in energy production and other industrial activities or currently hold
large potential to do so. In this framework “Trade” not only means the exchange of commodities but also of technology and
knowhow. However, great challenges exist regarding supply capacities of developing countries, technology availability,
intellectual property rights, border regulations, and investment capacity of developing nations.
Also, other matters arise that could jeopardize the establishment of a Green Economy. For example, some countries have
expressed concerns that the transition to a Green Economy could cause their export industries to experience a declination in
demand (Cosbey 2011 and 2010) ending in protectionist policies regarding technology and trading of commodities. Also,
new imposed environmental standards on trade could be seen as enemies of competitiveness. However, as mentioned in the
UN Issues Brief, there is evidence that trade policy and environmental policy can complement each other and create the con-
ditions within which firms can innovate and become more internationally competitive. For example, Germany and Japan
have amongst the toughest environmental regimes in the world yet both are able to compete internationally and spearhead
industrial development while still sustain an economic growth, this is mainly thanks to a well developed technological ca-
pacity, an efficient green trade financing and loans system, and a clear premise that states the importance of innovating now
in order to capture markets in the future. (UN’s panel of experts 2011)

Institutional Framework for Sustainable Development

Although 20 years have passes since the creation of the Commission on Sustainable Development (CSD) at the UN’s Confer-
ence on Environment and Development in 1992, little convergence has been achieved on forging an intergovernmental body
to outline and implement Sustainable Development strategies. Reforming the institutional framework for trade and economy
in order to promote Sustainable Development on a triple bottom line dimension is a mandatory step towards an integrated and
cohesive Energy System on the intergovernmental level. There has to be an entity with the faculty to control and monitor the
way the system’s resources are used. Such intergovernmental body will be intended to find the balance among the setting of
the agenda for the future, negotiating to fill the gaps of the present, address the emerging challenges, review the progress of
implementation, outline the necessary metrics, facilitate dialogue and partnership in multi-stakeholder projects, share experi-
ences and lessons learned, and manage the buildup of technical capacity in developing countries. Moreover, many issues
regarding this intergovernmental organ should be addressed in order to allow an efficient institutional innovation, like for
example transparency and scope in international relations. (Rio+20 Issues Briefs No. 3, 2011)

Issues Regarding the Transition to a Green Economy

Green Economy and Trade have major implications on the Energy System as it would be impossible to hold a decentralized
energy production and distribution without the existence of an established framework of operation within which, especially
for developing countries, the issue of exchanging technology and intellectual property is not solved and promoting infrastruc-
ture in energy is not a major concern. But there are still many risks associated with the transition to a Green Economy that
involve the misuse of the concept. For example, care should be taken in preventing the interpretation of the concept as purely
environmental, leaving aside the economic, social and politic dimensions of it, and also in avoiding the “one size fits all”
approach, in which all countries are treated in the same manner regardless of their industrial capabilities and economic poten-
tial. Also, another issue that poses a major threat to the Green Economy and Trade is the fact that nations and firms could
implement protectionist measures for trade under the banner of environmentalism and therefore disguising the real goal of
gaining access to the future energy market. Moreover, probably the biggest setback that could occur in the transition would
12 SPE 158270

be the failure to insert developing countries as a vital part of the system. The concept of Green Economy and Trade should
not be used to impose new conditionality on developing nations for aid, loans and debt rescheduling or relief, instead, Green
Economy should be devised to aid promoting developing nation’s green sector until they can face the technical standards and
requirements that otherwise they wouldn’t have been able to meet on their own. It’s imperative to understand that it would be
counterproductive to exclude developing countries from the system as they are vital to achieve and sustain operation at the
economic limit.

A More Sustainable Energy System

The Energy System of today is the outcome of a transition that took place during the second half of the 20th century, on which
nuclear power and renewable energy first began to be implemented as a commercial solution to generate energy. Before that,
the Energy System was comprised almost entirely by fossil fuels (HC and coal Sub-Systems). The fact that today’s system
consists of four Sub-Systems (HC, coal, nuclear and renewable) is not due to something that occurred overnight, but instead
it happened as result of a transition process during which much R&D was invested in identifying the possible role and devis-
ing implementation measures of the freshly introduced Sub-Systems. Looking back, this period was marked by lots of specu-
lation and an extreme political framework, as it was the cold war and the subsequent fall of the Soviet Union, the oil crisis
and the fear towards the “peak oil”, and the rise of nuclear energy generation followed by the drastic setback in the construc-
tion of nuclear plants caused by the Chernobyl effect. If conclusions are drawn from this period it’s possible to say that the
full potential of these technologies hasn’t been explored yet and the Overall System they all conform does not operate at the
economic limit. Why is that? Because the output of energy generation does not yet generate a positive impact in the triple
bottom line sustainability, because the Sub-Systems do not complement each other to the point of eliminating gaps of supply
and mitigating the existent efficiency loss inherent to the system. The next stage of evolution of the system will be to raise
efficiency to the highest achievable level, improve the impact generated and devise profitable solutions to address the envi-
ronmental and social constraints in the Surroundings of the system.
In this section an Energy System will be outlined to set as target for the medium/long term. The year 2040 was chosen as
there are many different projections that share such date and predict the energy playing field in different ways.

Energy Playing Field in 2040

How will the energetic matrix be composed a few decades from now? Many authors and sources agree on the fact that fossil
fuels will still be a dominant energy source of the system (BP 2012; Andrews and Shabani 2011; Kleijn and Voet 2010)
while nuclear, renewable and hydrogen energy will gain prominence and occupy new roles within the overall system. Also,
expecting a world population rise of as much up to 9 billion inhabitants and a primary energy demand percentage increase of
32%, a re-envisioning of the actual Energy System needs to be set in motion in order to be able to satisfy the world’s energy
needs of the future.
The share of the 2040’s total energy matrix each Sub-System will own is yet uncertain as the spreading and large scale im-
plementation of the different available and on-development energy generation methods depend largely on the technological
breakthroughs achieved and their competitiveness increase. However, projections can be made based on simulations and as a
way to establish some guidelines. For example, Kleijn and Van der Voet suggest a scenario for the year 2040 on which the
totality of the energetic matrix is comprised by renewables; they project that world’s annual primary energy demand will be
of 1278 EJ (1018 J) and that wind power will supply about 15% of it, hydropower 3%, solar generation 80% and the remain-
ing share of the matrix with a combination of tidal, wave and geothermal energy generation (Kleijn and Voet 2010). Another
example is the one that Andrews and Shabani propose where they assume the energy production mix for 2030 will be of 31%
out of nuclear fission, 27% from renewable sources, 26% from natural gas, and 14% from coal (Andrews and Shabani 2011).
Although separated by 10 years, the two scenarios present different perspectives of how to sustainably produce energy, for
example, note how Kleijn and Van der Voet’s scenario completely excludes nuclear and biomass, as they state would require
an extensive amount of high quality agricultural land and water and therefore only capable of supplying a limited amount of
the world’s energy, while Andrews and Shabani take nuclear fission as one major player. Nevertheless, these authors share
the same vision regarding hydrogen and electricity as being the future’s energy carrier. In fact, betting on hydrogen as a nex-
us between the actual carbon economy and a more sustainable future is probably the most reliable thing to do as hydrogen
holds a large potential not only as an energy carrier but also as a possible improvement for energy trade and storage (Sartbaeva
A., Kuznetsov V., Wells, et al. 2008).
In this paper, no projection will be made about how the energy matrix will be divided in 2040. Why is that? We´ve defined
the goal of the Energy System as to generate energy from a given raw material in the cleanest, safest and most profitable
way and distribute it in every of its required forms as cheap and comprehensively as possible and it’s the author’s belief that,
in order to achieve that goal, the problem shouldn’t be approached by specifically reducing the protagonism one Sub-System
may have within the Overall System to let other Sub-Systems gain prominence, or in other words to cut down the use of one
energy generation source (like petroleum) to replace it with another (like renewables). If we recall that the system’s sustaina-
bility is governed by the set of constraints that lay in the Surroundings, like for example CO2 mitigation and poverty reduc-
tion, and that the only way for the system to deal with such constraints is to undertake intrinsic changes on its Element level,
SPE 158270 13

we’ll see that such actions should be taken by constantly monitoring and analyzing the system’s measurable outputs and not
by setting already from the start long term goals that might be unachievable. If for example we set the goal of having so to
say a 40% share of renewables in the energy matrix and oblige the system to follow the path to accomplish such goal, we
might be diverting the system from many years of operating at the economic limit and generating the maximized output. In
other words, we must assess the system’s sustainability by the combination of impact and revenues that it generates, which
are completely measurable and represent the total result of the system’s interaction with the Surroundings, and not by stating
that the system needs to change its form basing on the premise that renewables, which also have major economic and re-
sources constraints of their own and also generate a share of negative environmental impacts, can raise the triple bottom line
sustainability of the Overall System more than if the system was left to interact with the Surroundings in the best way possi-
ble. The system on its own, if operating at the economic limit, would be sustainable, as it would be generating an increasing
positive impact and revenues that will allow it to evolve and endure in time. Economic limit means, by definition, that effi-
ciency should be maximized and gaps should be non-existent, hence generating the best possible measurable output. There-
fore, if operating at the economic limit is the goal, the system will be sustainable and able to endure in the long term as the
system itself will allow the entrance, change or exit of Sub-Systems by assessing such action’s contribution to the triple bot-
tom line sustainability of the Overall System.
Nevertheless, the fundamental hypothesis of this theory is that the system’s natural state is the economic limit. However, the
Energy System of today does not operate at the economic limit because the outputs’ magnitude (the combination of both
impact and revenue) is not maximized. Therefore, the first step to take before aiming to change the system is to drive it to-
wards the economic limit; this will be studied throughout the next items of this section.

No Exergy Loss

In order to push the system to the economic limit it’s necessary to identify which variables to measure and how to do so. As
described before, the system was designed for it to have an output composed by the combination of the measurable impact
and revenue. The revenue stream shouldn’t be considered as an actual profit margin but instead it should be taken as an indi-
cator of the system’s overall profitability. Also, it cannot be considered as the sum of every Sub-System’s profitability as for
the Overall System to maximize its revenue, the condition is that all the Sub-Systems must operate at the economic limit as
well. On the other hand, the triple bottom line impact is the sum of all the impact caused by the Sub-Systems, both negative
and positive, throughout its Elements. Moreover, the issue arises of whether it is possible or not to compensate negative im-
pacts generated in one of the Elements with another positive one in some other stage. For example, a hydroelectric dam may
require the flooding of a valley which would cause the local ecosystem to shift its balance and also perhaps the further reloca-
tion of a settlement that used to be on such valley. This would mean an initially negative social and environmental impact,
which could of course be mitigated by taking the proper measures when managing the relocation of the people, but some may
argue that this would all be done for a “greater good”, or a larger triple bottom line impact, that is to finally supply the area
with cleaner energy in a more efficient way at lower prices, boosting the area in terms of industrial development, and facili-
tating access to irrigation water. Therefore, as the system will be monitored by measuring the triple bottom line impact, it’s
possible to say that in some cases impacts can be compensated on the system level. Although, it’s open for discussion and
every case requires a dedicated analysis.
Now that the variables of the system are defined, it’s necessary to find a way to measure their quality and calculate a balance.
To do so the Exergy method will be applied. The concept of Exergy is defined as a measure of the work potential or quality
of different forms of energy in relation to a given environment. An Exergy balance applied to a process tells us how much of
the usable work potential has been used (or irretrievably lost) throughout the process, giving also a notion of the process
inefficiency (Kotas 1985). Here, the Exergy balance will be made by measuring the quality of the outputs in order to identify
the loss of Exergy that took place within the system. The work potential, or Exergy, lost will be the possible positive impact
that wasn’t achieved and the profitability missed as a result. The system will operate at the economic limit if no Exergy is lost
in the process.

Operating at the Economic Limit to take further steps

Once the system has achieved its new natural state, which consists of operating in a way that the largest possible triple bot-
tom line impact is generated, one may ask: How long will the system remain like this until the Surroundings shift and the
outputs cease to be maximized? It’s likely to think that the system’s environment will modify or generate new sets of con-
straints that will require changes inherent to the system in order to reach the cross-boundary interaction necessary to regain
operation at the economic limit. But theoretically, as the system’s natural state is to operate at the economic limit, those
changes would be launched automatically, forcing the system to eliminate the Exergy loss present in the process and maxim-
ize the outputs once again. For example, the demand for triple bottom line impacts will drive technology advancements to
strive for making energy generation methods, that today are in development stage, commercially implementable and therefore
bringing newer and more profitable alternatives of combining technologies to generate energy. Research and private invest-
ment on a specific technology will increase as it emerges as a viable option to replace, complement or enhance the System, a
Sub-System or an Element, hence reducing costs even more and making such technology more attractive. It’s likely to think
14 SPE 158270

that, at some point, these methods will begin to be implemented because they have become profitable and reliable enough to
be a safe investment on their own and a substantial contribution to the system they are introduced. Therefore, one day it
might be possible to have, once the technology allows it, small hydrogen generation facilities placed in oilfields that feed on
excess gas during the summer to produce hydrogen that can be stored and utilized during the winter to satisfy energetic needs
that were problematic once before, causing a major impact on the Storage Element and a significant saving of Exergy as it,
before implementing those measures, failed to comply with supply during high demand periods and by investing resources on
handling excess gas (reinjecting, venting, etc.) during low demand periods, meaning a poorer social and economical impact.
Also, another possibly viable option to reduce Exergy loss in oilfields could be to have in-site gas fired power plants with
Carbon Capture and Sequestration Systems (CCS) to generate electricity that could be later stored in batteries and fuel cells
and further on traded or stored as contingency energy. Until now, hydrogen production processes, CCR and high-efficiency
batteries are not evolved enough on a triple bottom line basis to support an option like this, but it’s a clear example of how
technology and the Surroundings can automatically impulse intrinsic changes on the System.

The Transition

The period of time on which the Energy System will undergo the restructuring required to achieve the economic limit will be
marked by many socio-economic and politic factors that may bring many challenges as well as a wide range of opportunities
of economic growth to both the private and public sector. Throughout those decades, not only major scientific breakthroughs
that will allow the commercial implementation of energy technology that was so far unprofitable will be seen, but also it will
be possible to witness the beginning of a worldwide re-envisioning of global economy in all its aspects, as the notion of trad-
ing energy in various forms arises and as awareness is spread on the fact that a triple bottom line operating system is most
persistent structure.
The Transition this paper revolves around is no other than the period of time until the system reaches the economic limit. The
year 2040 was proposed in the previous section as a theoretical date on which the system has achieved operation at the eco-
nomic limit and has adopted it as its natural state of operation. This section will explore some key factors and considerations
to plan and undertake the Transition.

Competitiveness

The variable that will determine the timeline of implementation of the energy technologies that will comprise the future’s
Energy System is how competitive such technology has become as a commercial alternative for energy generation. But what
does exactly mean to be competitive? Just as the definition given of Sustainability, Competitiveness has a triple bottom line,
so therefore to say that a technology has become competitive is to say that it’s technically and profitably applicable within the
economic framework it’s set to be undertaken, that the environmental impact predicted to be caused by its implementation
complies with the present standards and requirements, and that the choosing of this technology over another involves a direct
improvement on living standards and poverty reduction. This concept is not taken into account in this way nowadays, instead,
it’s considered to be an entirely economic issue. For example, fossil fuels are today most the competitive way of generating
energy on a large scale as there’s a large amount of infrastructure and knowhow that contributes to achieving a Well-to-Tank
efficiency (from crude oil through refining to gasoline) of around 84% compared to the much lower electric vehicles (EV)
Well-to-Tank efficiency (from natural gas through power plants to electricity generation) of 33%. At first glance one may
conclude that the massive implementation of EV would be uneconomical in comparison with the petroleum alternative and
for it to be realistically competitive much R&D would have to be invested. But by taking the analysis further on to the ener-
gy’s end use it would be seen that the Tank-to-Wheel efficiency of an EV clearly surpasses the one of a combustion engine
by 85% against 23%, which gives an overall Well-to-Wheel system efficiency of 33% for EV and 19% for conventional
gasoline driven vehicles (Yokoyama 2009). Therefore, EV are not so uncompetitive after all and, if analyzing this case from
a triple bottom line Competitiveness perspective, the breach gets even more narrow as the fossil fuel system’s overall Com-
petitiveness will decrease if the negative social and environmental impacts caused and the financial spending that those would
require to repair or mitigate are taken for account, hence making EV more attractive and bringing forward its implementation
time. Is therefore concluded that the way the system will be able to reach the economic limit is to redefine Competitiveness
from a single to a triple bottom line concept.

No Subsidies

Many governments of the world are subsidizing energy conservation initiatives, renewable energy development, and green-
house gas emissions reduction. Whether or not these policies generate a positive outcome on the energy economy is open for
discussion as they, although well intended, also could lead to negative impacts that might hinder the system’s transition to-
wards the economic limit. It’s clear that specialized knowledge, access to technology, capacity-building programmes, and
professional qualifications required to undertake energy projects is very high and sometimes out of reach of many developing
nations that don’t have sufficient purchasing power to ensure a reasonable stream of revenue to firms or other states in pay-
ment for services rendered. Therefore subsidization schemes may need to be in place to ensure the sustainability of both the
SPE 158270 15

supplying firm and the nation where the project is undertaken. But subsidizing the buildup of the sustainable Energy System
could cause the Energy Economy to be artificial as it would be impossible for it to endure and uncompetitive in the long
term. A system that closely relies on subsidies would be unstable and, if not well planned, leaded astray, especially regarding
long term effects. Therefore, subsidies should solely focus on acquiring the technology and infrastructure necessary to launch
the venture, and conceived in a way for it to be able to operate and endure in time without the need of relying on direct or
indirect capital flows. A sustainable Energy System can be profitable and competitive being self-sufficient at the same time;
therefore the aim should be to achieve such state while building a solid ground to allow further growth. (Lior 2011; Rio+20
Issues Briefs No. 1, 2011; Celli, Shafaeddin and Wise 2010)

Peak Oil Postponed?

It is now acknowledged that the proved reserves of fossil fuel in the world, once thought peaked and subject of constant fu-
ture declination, have significantly grown and gained prominence as the future of the O&G Industry thanks to the exploita-
tion of unconventional reservoirs. It is thought that the combined reserves of Tight Gas, Shale Oil and Gas, Tar Oil Sands,
Coal Bed Natural Gas (CBNG), extra heavy oil and methane hydrates are significantly larger than the conventional ones.
This has given the O&G Industry a new push to invest and develop the technology required to produce such unconventional
reservoirs, thing that exceeds by far the technical and economic challenges that conventional oil demanded as it poses a sig-
nificantly larger negative environmental impact and, by far, higher production costs. Although, this presents a major oppor-
tunity for the O&G Industry to remain in force and have a leading role in the coming decades’ energy playing field. Much
R&D is needed in order to overcome the difficulties unconventional exploitation drag while still targeting a triple bottom line
sustainability in order to contribute to the Overall System’s objective of reaching the economic limit. Strategies to do so will
be presented further on. (Lior 2011)

Energy Storage

The Elements of the Energy System that hold the greatest potential of enhancing the quality of the outputs are Storage and
Distribution. A large amount of Exergy is lost in the process as consequence of the intermittency in electricity supply coming
from renewable energies. This would be impractical to solve by storing petroleum for long periods of time. In fact, in a sys-
tem manly running on fossil fuel, storage of electricity wasn’t a major concern as power plants could simply burn more fuel
when demand was high. But as renewable energy approaches grid parity, large-scale energy storage will become essential in
order to maintain supply despite the intermittency of wind and solar power generation. Also, energy storage will solve the
Exergy loss involved when excess energy is wasted, as for example venting or re-injecting gas in oilfields due to seasonal
demand. Improvements in battery technology, smart grid designs and an economic implementation of large-scale hydrogen
production can cause a major impact in electricity storage and distribution. Hydrogen is one of the most promising technolo-
gies as introducing it into the system will mean a game-changing benefit; for example, great advances have recently been
seen on the field of hydrogen production as catalytic electrolysis, a more energy efficient method than simple electrolysis,
approaches commercial implementation stage on its development, and bulk storage of hydrogen holds great economic ad-
vantages as it eliminates the need of energy to be used as soon it is generated and opens a wide range of opportunities regard-
ing trade and decentralization of energy distribution and production that will be analyzed further on. (Luoma 2009)

The Role of the O&G Industry in the Transition

How can the Energy System achieve the economic limit while still securing energy supply with a constantly rising demand?
It will be a complex task as it will require not only the investment of a large amount of resources and capital, but also it’s
likely to think that the transition to the economic limit will take time, probably in the order of decades. Throughout that time,
the gaps and the losses of Exergy in the system must be identified and solved while at the same time aiming to maximize the
measurable outputs by adding profitability and engaging into positive triple bottom line impacts. All this will become even
more challenging as the Surroundings of the system, meaning the political, social and environmental context on which the
system operates, will drastically change and dynamically evolve as humanity approaches new breakthroughs in technology
and social development.
The Energy System, comprised by four Sub-Systems (Renewable, HC, Nuclear and Coal), holds potential to achieve the
economic limit if a tighter and more efficient interaction between the Sub-Systems is encouraged. It is possible to achieve
great results by using the existent infrastructure and devising strategies for the Sub-Systems to complement each other to-
wards achieving the objective of enhancing the sustainability of the System and drive it to the economic limit. For this stage
of the system’s evolution, the HC Sub-System stands out as it is the most widespread way of generating energy in the world
and the biggest pool of opportunities in terms of the possible contribution to the Overall System throughout the transition to
the economic limit. Thus, it is the O&G Industry that has the chance of playing a leading role in the transition by becoming
16 SPE 158270

the facilitator of change and a major player in the Energy Industry’s shift towards a more sustainable operation, as it holds a
large potential of generating positive impacts and of enhancement in terms of efficiency.

Redefining “Role”

By saying “role” one might think that it refers to some kind of predestined and imposed path the O&G Industry must follow.
But one needs to keep in mind that if the economic limit is to be the target of the Energy System and the O&G Industry it is
so because it will be the most profitable, stable and rewarding operational mode existent within the corresponding global
framework. That is the reason why the vectors revenues and impact were chosen as outputs of the system, to show that the
profitability factor is decisive in the issue of undertaking a project or not. Therefore, the definition given of the economic
limit serves as argument to justify why the System, and in particularly the O&G Industry, will tend towards it and ultimately
adopt it as its natural state. This would be because if saying that the economic limit is the state on which lies the highest bal-
ance between the revenues that the project generates and the potential impacts generated by its operation, then it’s meant that
this is the most logical alternative viewed from the business and financial side and, therefore, the path that will be inexorably
followed. But the particularity of the here proposed economic limit is that it has a very pronounced triple bottom line nature
that ties the social and environmental impacts very closely to the economic revenues, done to represent a time where it would
be impossible to undertake any venture or project, sustain it through time, and deal with all the externalities that might jeop-
ardize it without contributing to improve society and the environment. This was deduced basing on the fact that, as explained
before, there’s an observable tendency of the world on every level (industrial, political, social, etc.) to shift towards sustaina-
bility. Therefore, it’s likely that one day, due to for example the strengthening of regulations regarding environmental protec-
tion and stakeholder’s pressure on CSR and sustainable practices, it would be impossible to launch a venture that will endure
and remain in force in the long term, or in other words be sustainable, unless such venture is addressed on a triple bottom
line. That’s the reason this paper ventures to say that we are about to undergo a transition period with the O&G Industry as
one of its major players; not because it is a predestined “role” to fulfill, but because it will be the best way to remain in force
and add value to the business.

Challenges and Constraints of the O&G Industry in the Transition

The O&G will face many challenges associated with the transition, some of them driven by the Surroundings of the system
and some of them by the inherent need of elevating profitability of the business, but they all have one constraint in common
which is to address activity on a triple bottom line basis. Therefore, in order to fully profit from what the transition has to
offer, there has to be awareness on the fact that every operative aspect of the O&G Industry will have direct and indirect
social, economical and environmental repercussions, hence requiring a multi-disciplinary approach. The best way to deal
with them, as mentioned before, is to seek the maximization of the measurable outputs and to identify and solve Exergy loss-
es that appear in the process.
One of the first issues to solve might be the resource constraints and mitigate the environmental impact that unconventional
oil and gas carry while still overcoming the financial challenges a project of such magnitude involve. Natural gas resources,
much of it located in shale reservoirs, are estimated to be immense (640 Tm3 according to 2011 estimate) and capable of
satisfying the world’s energy needs for 203 years at the gas consumption rate of 2010, making it a most attractive alternative
for the O&G Industry to fully exploit. Shale formations have extremely low permeabilities, typically on the order
of 0.01to 0.00001 millidarcies (mD), and often require the combination of horizontal drilling and hydraulic fracturing in
order to make shale gas an economically viable resource (Freeze and Cherry 1979). Such operations, in comparison with
conventional O&G production, demand a substantially larger amount of capital, require a lot more technology and generate a
greater environmental impact. For example, a single stage hydraulic shale fracturing operation of a typical vertical well the
Marcellus Shale in the northeast region of the United States required about 520,000 Gal (~12400 bbls) of fracture fluid of
which 98% is water (Arthur 200a). Moreover, fracturing a horizontal well, most common in shale reservoirs, require at least
4 of such stages, making water needs even larger. Therefore it is evident how these operations may affect the environment as
large volumes of water need to be available and stored on site, usually in tanks or in artificial pools, and later on dispatched
in a safe and environmental manner. Nowadays, flowback disposal is regulated by municipal laws, most likely to get tighter
in the future, and it involves the use of injector wells and industrial water treatment facilities, which carries another economic
constraint of site-to-facility transport. Also, there is the possibility of recycling flowback water; for example, in the Barnett
shale in west Texas (US) recycling processes that allow the reuse of approximately 80% of the fractured fluid used are being
explored, although in early phases of implementation. (Athur 2008b)
Finally, the most important factor the Energy System will have to deal with, in the transition towards achieving operation at
the economic limit, will be the time of implementation of the set of technologies that are meant to fill the gaps caused by the
centralized energy production and distribution model. Projections on R&D may give an idea about how the transition will
progress but it’s unlikely that we know for a fact exactly when a technology will become completely functional and econom-
ically implementable. For example, Small Modular Nuclear Reactors (SMR’s) of up to 300 MWe are seen as a much more
manageable investment than big ones, whose cost and long term return of investment rivals the capitalization of the utilities
concerned. SMR’s are a viable addition to the Energy System and a lasting contribution to its decentralization. But as shown
SPE 158270 17

in a 2009 assessment by the International Atomic Energy Agency (IAEA), there could be 96 SMRs in operation around the
world by 2030 in its 'high' case and 43 units in the 'low' case (World Nuclear Association. 2012). Therefore, some uncertainty
will remain about when and how the technologies, envisioned to complement the system’s gaps and promote its decentraliza-
tion, will be available.

The Energy System at the Economic Limit

Throughout the following decades the system will change as new technologies become economically implementable, thus
allowing the gaps present in the system to be filled. Although, the system’s evolution will be tied to many, and sometimes
unpredictable, variables related to global politics and technologic development, therefore making every actual projection of
how the system will be comprised still subject to an error factor. Nevertheless, it’s possible to sketch a system operating at
the economic limit by relying on three main aspects that the author feels fundamental in order to achieve the economic limit:
the interweaving of the Sub-Systems; the decentralization of the System; and the implementation and broadening of Hydro-
gen production and distribution, Carbon Capture and Sequestration Systems (CCS), cutting edge unconventional batteries to
store electricity, state of the art Smart High Voltage (HV) Grids, and improvements in wind, solar and biomass technology. A
short description of the just mentioned technologies and their role within the system will be given below:
 Hydrogen production, once economically implementable, will be used to mitigate the loss of Exergy in the Production
and Storage Elements. Cost and energy requirement reduction of hydrogen generation still needs much R&D. But this
technology holds a great potential of generating a major impact in the system once it gets fully applicable as hydrogen has
a high energy density (between 120 and 140 MJ/kg, in comparison with gasoline that has 45 MJ/kg) and it’s a very versa-
tile technology that can offer new profitable alternatives for energy trade and distribution. A variety of production tech-
nologies can be used; these are chemical, biological, electrolytic, photolytic and thermo-chemical. Each technology is in a
different stage of development, and each offers unique opportunities, benefits and challenges.
 Carbon Capture and Sequestration or Storage (CCS) is the process of dramatically reducing carbon dioxide (CO2) emis-
sions from power generation and making it available for other uses. CO2 is compressed in the power plants and then
transported via pipelines to oilfields where it can be stored underground in depleted reservoirs or be used for Enhanced
Oil Recovery (EOR) projects. R&D needs to be done in order to reduce costs and make this technology fully imple-
mentable. (Herzog 2001; CCS Education Initiative 2012)
 Improvements in battery technology, regarding capacity and size, will mean a large contribution to the decentralization of
the system and to solving intermittency and supply gaps. Some examples of possible breakthroughs in battery technology
are the implementation of small energy-dense batteries on the household level in combination with Smart Grids, huge
scale batteries with the capacity of tens of millions of watt-hours (applied for example in Fairbanks, Alaska. An isolated
city from electricity grid with a population of about 100,000. During its sub-zero winters, pipes can freeze solid in as little
as two hours, therefore in 2003 the city installed a huge nickel-cadmium battery as a backup battery) (Clean Car Options.
2009-2012), and unconventional batteries such as Flow Batteries, which are devices that convert the chemical energy
stored in electro-active materials directly to electrical energy. Their main characteristic is that electro-active materials in a
Flow Battery are stored mostly externally in an electrolyte and are introduced into the device only during operation, there-
fore making the energy capacity of a flow battery dependant of the size of the external storage components.
 Smart Grids refer to the use of computer-based remote control, automation and monitoring on electricity networks. They
offer many benefits to utilities and consumers, mostly seen as big improvements in energy efficiency on the electricity
grid and in the energy user’s homes and offices (United States Department of Energy). All that combined with the addi-
tion of HVDC lines and superconducting can cause major improvements in electricity distribution and commercialization.
(Nguyen and Savinell 2010)
 Wind, solar and biomass technologies must continue to receive R&D in order to continuously reduce costs and raise effi-
ciency. The complementary nature of these technologies must be fully exploited in order to allow them to one day be-
come major players in primary energy generation and supply.

Other main aspect of the system at the economic limit is, as mentioned before, the interweaving of the Sub-Systems. This
means that no longer the Sub-System’s Elements will be considered as individual objects within the System, but instead part
of a larger Element that belongs to the Overall System. As seen in the sketch at the end of this section (Fig. 6), the Sub-
Systems are now related and interact among each other in order to fill the inherent gaps the system presents. The model of the
system operating at the economic limit presented in the figure will now be described. Note that this is a sketch of a system
that has already achieved the economic limit and now has become its natural state of operation, where the technological im-
provements necessary to accomplish this have already occurred. Strategies to achieve such state will be presented further on
in the next section.
The central axis of the system will be the production of petroleum and gas, as it’s likely that the O&G Industry remains in
force and as a major player in the global Energy Industry because of the large amount of infrastructure already existent, the
potential it holds to introduce complementary energy technologies in its processes, and the leading role natural gas (mostly
from shale and tight reservoirs) will have in the following decades’ energy playing field. Also, the triple bottom line contri-
bution of the O&G Industry will continue to gain prominence as a main stakeholders’ concern; therefore CSR, environmental
18 SPE 158270

safety enhancement and investment in sustainable technologies are likely to remain as priority in the O&G firms’ agendas.
Natural gas and crude oil are the energy vectors that come out of the O&G Production object; of those, two vectors of gas
will be discriminated. Many oilfields have to deal with a seasonal demand caused by the difference between the gas con-
sumption during winter and summer time, often this results in venting excess gas during low demand periods causing a rele-
vant accumulated loss of Exergy, also some oilfields may produce a relatively low volume of gas that do not economically
justify the construction of gas treatment facilities and long range gas pipelines. This can be solved by small modular hydro-
gen production facilities in which hydrogen is produced from natural gas by steam methane reforming (SMR), partial oxida-
tion (POX) and autothermal reforming (ATR) processes (International Energy Agency. 2006); this hydrogen will be destined
to satisfy strategic energetic needs, like for example seasonal demand, and to complement the oilfield’s supply of electricity.
The sequence just described can be seen in the sketch as the gas vector exiting the O&G object from the top. The other gas
vector (seen exiting the object from below) represents natural gas produced on large and economic volumes, mostly from
unconventional reservoirs; this gas will be used to generate electricity in gas fired power plants.
Another possible application of O&G technology could be geothermal energy generation, which consists of utilizing the
earth’s underground stored thermal energy. Such thermal reservoirs are reached by ultra deep drilling technologies utilized
for HC production; hence it is located inside the O&G Production object. Economical feasibility of this technology should be
explored as it presents many challenges in the exploration stage as thermal reservoirs are usually very deep and therefore very
expensive to drill, and often far away from the main electricity grid. (Clean Energy Ideas.)
Another important source of energy for the system will be coal. Energy generation from coal fired plants today represent 25%
of the total energetic demand and, as being a low-cost per BTU alternative in both the developed and developing world, its
use is projected to increase until the economic limit is achieved (MIT 2007). Coal has a high carbon content, hence an in-
crease in its use will exacerbate the problem of climate change unless coal plants are deployed with very high efficiency and
large scale CCS is implemented.
CCS is a key technology in this system as it improves the quality of the impacts in terms of CO2 emissions and environmen-
tal damage. Both coal fired and natural gas fired power plants must be devised with CCS systems and the existent ones refit-
ted to hold them. This will not only drastically reduce the greenhouse gas (GHG) emissions but will also result in large quan-
tities of compressed CO2 available for other uses. Normally, the sequestrated CO2 is stored in depleted gas reservoirs, but a
very promising destination for the produced CO2 is its use in Enhanced Oil Recovery (EOR) projects. EOR consists in,
through different techniques that involve, mentioning a few, in-situ combustion and the injection of gas, chemicals, polymers
and steam, to produce remnant oil in the reservoir that was unable to be moved by primary and secondary recovery. One of
the techniques of EOR is CO2 injection. Therefore, the CO2 produced in these plants can be injected into the oil reservoir at
high pressure in order to recover oil that was once bypassed and immobile, this way raising the recovery factor as high as
80%, therefore eliminating the Exergy loss caused by solely dispatching the CO2 instead of using it to raise the efficiency of
the system. This is represented by the CO2 vector exiting the gas/coal fired power plants with CCS and entering the O&G
object.
The last vector exiting the O&G object represents the crude oil destined to be sent to the refineries to produce gasoline and
diesel for the transportation sector and the other fractions of the crude that will serve as feedstock for derivates and sub-
products. The distribution of crude oil is likely to remain as it is now, meaning by long pipelines and tanker ships. The triple
bottom line impact that can be achieved in the Distribution Element consists basically of improving transportation safety and
hazards prevention to avoid oil spills in ships and pipelines, and reinforcing international regulations so that pipelines that go
across many countries meet the standards required. Also, a large positive impact and Exergy saving can be achieved in the
Consumption Element. For example, recycling of oil derived thermoplastics must be fully and world scale implemented and
standards in chemical industrial waste handling should be strengthen in order to prevent contamination. Regarding the
transport sector, much can be accomplished by setting engine emissions standards to automotive industries and promoting the
use of Hybrid cars and Battery Electric Vehicles (BEVs). Also, one aspect to take into consideration for re-envisioning and
change is the behavior of the consumer as people often use cars in unsustainable ways that won’t be possible to maintain with
the future energetic needs and the rising of population. Sustainable transport systems must be devised in every major city to
allow an efficient mobility and low-environmental impact. Another contribution to the transportation sector might come from
biofuels; for example, many nations of the world have established laws that demand a percentage of biofuels in the blend of
car fuel. But the question arises whether it’s advisable to destine crops, which could be available as food, to energy genera-
tion with the vertiginous population increase in the world, and if the yield of biofuel production is large enough to be an eco-
nomic solution to the energy issue (Sahai 2010). Still, biofuels can be produced without causing an impact in food supply by
utilizing household and industrial organic waste as feedstock. Therefore, in the system proposed, biofuels are produced from
waste matter. This will also require the buildup of a complex infrastructure of waste recollection as well as R&D on the refin-
ing and conversion techniques to make it a profitable alternative.
Biomass production is likely to be done in the countryside and the outskirts of cities because the waste will be recollected
from the municipal dumps and landfills and from large industries and farms. Therefore the electricity required for this pro-
cess will not come from the central grids, but instead from decentralized and independent energy generation systems in the
area, such as wind turbines and solar PV panels. The first big challenge in the implementation of these technologies will be to
reduce costs per KW and maintenance needs, and achieve a higher efficiency in electricity generation. Secondly, areas of
potential to set up wind farms and solar panel arrays must be identified. The earth receives 2.6x1016 W of energy from the
SPE 158270 19

sun every year and a total annual kinetic energy produced by the wind of 3.5x10 15 W, here it’s possible to see the enormous
amount of energy available for recollection. Although much R&D is still needed, wind and solar technology have proven
their value as complementary alternatives to generate energy and have shown their potential for massive scale implementa-
tion. In the system at the economic limit, solar and wind generation play a major role in filling the energetic gaps and largely
contribute to the decentralization of the system. One of the roles of the electricity produced from wind and solar farms will be
to supply local settlements and to provide primary energy for small inland cities, while also serving as a complementary con-
tribution to the main grid. Complementary electricity vectors are shown in the sketch of the system as a dotted line. It might
occur that providing for biomass and electricity supply of small cities leaves an excess of energy in some of the solar and
wind farms, this will be used to solve the main problem that these technologies carry: the intermittency. Wind and solar ener-
gy rate, although quite constant in some regions of the world, have an intermittent nature, therefore, in order to fully imple-
ment these technologies at the economic limit, solutions must be devised to solve the issue related to supply fluctuations. One
possible alternative could be to use batteries to store electricity and then keep as reserve in case of an interruption of supply.
The batteries object, as seen in the sketch, is located in both the Storage and Distribution Elements as they impact positively
in both. Also, part of the excess electricity can be destined to produce Hydrogen that can also serve as backup and could also
be sold or traded in exchange for electricity. Intermittency problems can also be solved by receiving electricity from the main
grid, shown in the sketch also by a dotted line, or by designing smart grids that, as mentioned before, are specially designed
to deal with intermittent sources of electricity, but this might not be viable on a smaller scale such as a local supply for a
small region. The particular characteristics of the region where the wind and solar farms are to be established must be as-
sessed in order to devise the best and most profitable system to ensure a sustainable and uninterrupted energy supply.
Another major player in the system is Hydropower. A study from the year 2000 estimates that the world’s total technical
feasible hydro potential is estimated at 14370 TWh/year, of which about 8082 TWh/year is currently considered economical-
ly feasible for development, therefore it’s likely to think that hydropower will gain prominence in the coming decades and
become an essential part of the system at the economic limit. Although the construction of a dam and power plant, along with
the impounding of a reservoir, creates certain social and physical changes on the environment, these impacts can be explored
early in the planning process so appropriate steps can be taken to avoid, mitigate and compensate the negative outcomes in a
very effective way, making it a sustainable alternative. Also, implementation potential exists in about 150 countries and
therefore, if fully met, making hydro a niche of energy on a global scale. Besides, hydro technology is to the date very ad-
vanced (allowing up to 90% efficiency and a very long plant life with very low operational costs) and an already proven
sustainable and environmental technique for electricity generation. (International Hydropower Association 2000)
The other substantial contribution of electricity in the system will come from nuclear power plants, but there are many issues
that arise regarding waste management and safety. Today, nuclear fission power provides ~15% of the world’s electricity
with an installed annual capacity of ~3000 TWe ( Birol 2011) and holds potential to enlarge that number if R&D is properly
placed. One main issue to be solved is nuclear waste disposal as it is highly contaminant and presents a serious hazard to
health on close contact. Another setback in nuclear power development is the question of whether or not it is safe; the rele-
vance of this issue can be seen on the number of nuclear power plants that initiated construction before and after the Fuku-
shima incident in 2011, before such event the number of nuclear facilities initiating construction was steadily raising, but
after, the accident, that number dropped drastically and even drove nations to question whether or not nuclear power was a
safe alternative (Rogner 2012). For example, France, that produces 75% of its electricity from nuclear power, has shown
signs of doubt over atomic energy while Germany plans to shut down all its nuclear plants by 2022. Despite of this, nuclear
energy will be considered in the system at the economic limit because of the great contribution it can offer in terms of reduc-
ing GHG emissions. Also, R&D of nuclear fusion (that has a three to four times greater energy release than fission) could
make it technically and economically feasible for large scale power plants in the coming decades, therefore nuclear energy is
still likely to be part of the system.
The electricity generated by gas and coal fired power plants, hydropower and nuclear power will serve to supply the bulk of
the energetic demand, being it the world’s major cities and the industrial sector. Also, as mentioned before, a share of that
electricity might be diverted as complementary supply to small cities and as load for BEVs.
As with wind and solar, gas/coal fired power plants, hydro and nuclear might produce excess electricity. In this case, inter-
mittency will not be a problem as the Smart HV Grids have a very large storage capacity and can ensure a constant supply.
Therefore excess electricity from these methods can be destined to fulfill one of the integral parts of the system at the eco-
nomic limit: Trade. As explained before, the system will operate in a re-envisioned global institutional framework designed
to sustain the previously defined Green Economy and Trade, hence trading energy will be possible and profitable as interna-
tional border regulations will provide the proper frame to engage into a triple bottom line based commerce. Also, as being the
spread of technology the other premise of the institutional framework for sustainable development, nations around the world
will possess the infrastructure required to export and receive the energy in the form it is shipped. Trading of energy could
come as electricity being transmitted along a cross-border grid or by converting electricity into other energy carriers like
hydrogen and batteries. As seen in the sketch, electricity can be diverted to large scale industrial hydrogen production plants
from which the hydrogen is stored and distributed through pipelines, or to storage in large capacity batteries that can be phys-
ically shipped and traded.
This is a proposition of an Energy System operating at the first achievable economic limit. The system will continue to
evolve and shift as technology advances and as the Surroundings present new sets of constraints and limitations.
 20 SPE 158270

PRODUCTION STORAGE DISTRIBUTION CONSUMPTION

BIOFUEL

RESERVES TO
BIOMASS BATTERIES PREVENT
SURROUNDINGS

INTERMITTENCY IN
SUPPLY
WIND ELECTRICITY
COMPLEMENTARY REVENUE
ELECTRICITY
SOLAR BEVs &
HYBRIDS
SMALL SCALE STRATEGIC
HYDROGEN HYDROGEN GASOLINE
PRODUCTION
GAS RESERVES /DIESEL
H2

O&G
OIL
$$$ PRODUCTION CO2

GAS GAS & COAL FIRED

POWER PLANTS
BOUNDARIES

WITH CCS
ELECTRICITY

COAL SMART HV
COAL GRIDS

IMPACT
BATTERIES
NUCLEAR
LARGE SCALE
HYDRO HYDROGEN H2 TRADE
PRODUCTION

Fig. 6

The Importance of the O&G Industry in the Transition

The O&G Industry will not only be present in the system operating at the economic limit, but it will also play a major and
central role as it’s likely to supply the biggest share of the transportation sector, serve as feedstock for chemicals, plastics and
other petroleum derivate products until technology to fully replace them with synthetic or natural materials becomes availa-
ble, and contribute to electricity generation with natural gas, which is emerging as one of the coming decades’ central elec-
tricity generation feedstock. The O&G Industry will be even more important throughout the decades that will take the system
to achieve the economic limit as it is through that period of time that major investments on infrastructure and R&D will need
to take place. This coincided with the projected rise of energetic demand and world population will bring major challenges to
the Energy Industry as it will be necessary to not only undergo the required inherent changes in the system but also at the
same time to ensure energy security and a constantly growing triple bottom line impact. The O&G Industry will play a major
role in this transition as it holds the largest and broadest network of available infrastructure in the current Energy System and
as being gas and oil the most widespread energy carriers worldwide. It will be the O&G Industry “task” to act as facilitator
and to navigate this transition as swiftly as possible, making these coming decades a very promising scenario for the oil and
gas.

The Opportunities of the O&G Industry in the Transition

Throughout the transition towards the economic limit, the O&G Industry has not only the chance of remaining in force but
also of elevating its profitability as a business and venture itself into new markets within the Energy Industry. Of course, the
transition will mean a very large investment of capital and resources, both done by private and public entities, but by doing
this the O&G Industry is securing a prominent share of participation in the future’s energy playing field. Today the HC Sub-
System, in comparison with the other Sub-Systems, is the most capable of directly and indirectly driving energetic develop-
ment by investing in R&D and by creating the conditions that would allow the entrance of new energy technologies into the
system. If the O&G Industry identifies the gaps in the system where new technologies could be inserted in order to mitigate
the loss of Exergy, increase sustainability and raise profitability of the business, then the R&D and investment will come.
SPE 158270 21

This plus a proper and long term planning can not only drive the system to adopting the economic limit as its natural state but
also add value to both the Energy System and the O&G Industry.

A More Sustainable World

The path towards the economic limit requires extensive planning and it’s likely that time and implementation constraints play
a governing role. The system’s versatility and capacity of adaptation will be tested as it moves along the shifting Surround-
ings, hence constant re-envisioning and a close monitoring needs to be performed. Below, some guidelines for the system to
follow when outlining and re-devising the strategy to achieve the economic limit will be presented:
 More energy efficient and sustainable consumption patterns must be established in the consumers. Energy conservation,
recycling and sustainable practices must gain prominence and strategies should be devised to, at the same time, imple-
ment those measures without depriving people from the basic necessities and comforts of life. (Lior 2011)
 Sustainable urban planning is mandatory as it will generate a very large positive impact on energy consumption, GHG
emissions and quality of living. Public transport systems in cities should aim to reduce the amount of cars in the street
by offering a reliable, efficient and environmental friendly network; also, sustainable architecture, like self-sufficient
buildings and solar panel equipped houses, must be promoted.
 The creation of an Institutional Framework for Sustainable Development must be set in motion as soon as possible as it
is likely that lots of aspects regarding international relations will have to be polished before a full and global launch of
cohesive measures towards achieving the economic limit.
 R&D on renewable energy, nuclear fusion, hydrogen production and O&G technology must continue vigorously as
these are the key factors that govern the implementation timeline.
 Costing of energy must be re-envisioned in order to avoid dramatic price fluctuations and allow energy to be converted
into other energy carriers to be traded.
 Sustainability must not be considered a science, but instead it should be adopted as a business model that all major pro-
jects regarding energy must apply on a triple bottom line basis.

The Benefits of a More Sustainable World

The transition, whether or not it happens as described in this paper, will bring many benefits on the triple bottom line basis
that will ultimately change every aspect of society and global economy. It is possible to question when and how it will hap-
pen, but it’s the author’s belief that there is no doubt about where the world is shifting towards. Throughout the coming dec-
ades, world’s population and global energetic demand will reach its historical highest and it is very unlikely that energy secu-
rity and decent living standards will be possible without a major re-envision of the actual Energy System and Energy Econo-
my. But, why aim for sustainability? Because a sustainable world, with an Energy System driven to economic limit, is a
world that can endure in time, a world that is versatile and able to adapt to its Surroundings and the new sets of constraints
that might appear in the future, and because it is the most probable scenario. Some day it will be impossible to undertake any
venture without it causing a positive impact merely because such will be what the world will be in most need of, meaning
that every project by itself will have to face the demand for social and environmental improvements and fulfill it while at the
same time meeting the expectations regarding revenues and return of investment, hence a direct triple bottom line impact. If
the project does not offer the corresponding outputs to supply such demand, then it will fail to endure in time and cease to
exist. Also, the indirect benefits the transition towards a more sustainable world will bring shouldn’t be forgotten. For exam-
ple, the sudden need of massive technological breakthroughs will mean great opportunities for the scientific and engineering
community and create many jobs during the implementation and expansion stage of new energy technologies. Besides, this
period will be ideal for entrepreneurship and a promising frame for developing nations to insert themselves in the global
playing field, improve their living standards, diversify their capital revenues and add more value to their economies.

Conclusions

It was seen in this paper that the O&G Industry has the potential of becoming a major player in the transition the Energy
Industry will undergo to achieve a more sustainable operation. Throughout such period of time, most likely of decades, lots
of challenges will come up and the constraints scenario will become more complex as the global economy reacts to the in-
creasing demand of changes requiring a triple bottom line approach. The O&G Industry will be one of the driving engines of
this transition and a major facilitator of change as it will enable the conditions for achieving Sustainable Development.
Moreover, the future of the Energy Industry, while still uncertain, will bring many profitable opportunities of growth, thus
generating a large amount of positive impacts, and an ideal period for entrepreneurship. The ventures undertaken throughout
this period will be decisive in determining the next stage of evolution of human society. It is this paper’s point of view that a
time when Sustainable Development and economic profits are attached, merged towards a common objective, and maximized
together, will be achieved and that the entire Energy Industry must work towards reaching that state.
Awareness should be raised within the O&G Industry about the fact that Sustainable Development is not only a mandatory
step towards securing endurance in time but also the source of many promising opportunities.
22 SPE 158270

Author’s Bio

Nicolás Strauss is a Senior Petroleum Engineering student at the Buenos Aires Technological Institute (ITBA). He spent a
semester as an exchange student at the Royal Institute of Technology (KTH) in Stockholm, Sweden. Strauss is an intern with
the Asset Development Team at Chevron in Buenos Aires, Argentina. This is Strauss’s first publication. His areas of interest
and research are Reservoir Engineering, unconventional oil, well completion, facilities and construction, Sustainable Devel-
opment, economy, team leadership and management, project planning and renewable energy. Strauss is also Manager of the
Energy, Science and Technology Section of the Junior Observatory of Sustainability (www.bypides.org). He occupies the
position of Treasurer of the SPE Student Chapter of the Buenos Aires Technological Institute (ITBA).

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