Oil update: Where’s the global energy plan?

This is an excerpt of the original article. It was written for the January-February 2022 edition of Supply Chain Management Review. The full article is available to current subscribers.

January-February 2022

Well, that’s over, and aren’t we all glad to put 2020 in the rear-view mirror? For a minute, however, let’s look at a silver lining, because I think there is one for supply chain managers. That’s because the pandemic put supply chain in the spotlight like never before—and, with the approval of a vaccine just a few weeks ago in December, supply chain and cold chain are back in the news… While sales usually gets all the attention, maybe 2021 is our time to shine.” That’s the beginning of the column I wrote for the January 2021 issue, and maybe I was a little too pollyannish.

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This column starts my 16th year of writing Insights. It was no coincidence that my first two columns were: “Is Your Supply Chain Addicted to Oil?” (January/February 2007); and “The Link Between Oil and Supply Chain Design” (March/April 2007). As a Baby Boomer, I have tried to maintain an energy efficient lifestyle since the 1973 Arab Oil embargo, when my VW bug almost ran out of gas.
The oil updates have shown that the market has become more market-driven and based largely on changes in supply and demand. Pricing has become more volatile due to declines in the economy, the pandemic and more recently from energy supply changes driven by uncoordinated climate-change policies.

Update background

I began researching oil pricing as part of the MIT Supply Chain 2020 Project in 2005. I espoused a reduction of oil consumption in global supply chains by slowing them down and developing cost- and energy-efficient networks, in contrast to cost- and asset-efficient ones. When oil prices were high, cost reductions translated to CO2 emission reductions. However, that position was based largely on two demand-supply assumptions. While oil would be readily available into the foreseeable future: 1) its price would rise in the long-run as demand for it rose with robust global economic growth; and 2) oil extraction costs would continue to rise over time because it was getting harder to extract it from the earth.

As discussed in the 2020 Insights column, “Oil Update: Fracking challenged with cheaper oil” (January/February 2020), I altered my positions about future demand-supply. Regarding the demand for oil, we entered an “era of cheaper oil,” we suffered through the Great Recession of 2008 and we’re currently experiencing impacts from the COVID-19 pandemic. Regarding the supply of oil, fracking techniques had lowered the time, resources and expense needed to quickly turn-on-and-off oil derived from shale. Therefore, on the demand side, reducing oil consumption because of higher prices was no longer a goal, and neither was co-related energy efficiency—that goal reverted back to speed-up the supply chain.

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