Page 2 of 3 - ZOOM + (IEA) noted that the global energy demand decreased by 3.8 per cent in the first quarter of 2020. Globally, the demand for coal fell by approximately 8 per cent due to three reasons: first, China - a coal-based economy - was hit the hardest by the Covid-19 pandemic in the first quarter; second, cheap gas and continued growth in renewable energy elsewhere challenged coal; and, third, mild weather also capped coal use. Oil demand also dropped by 5 per cent and the impact of the pandemic on gas demand was more moderate, at a 2 per cent decrease. Despite these factors, demand for energy will continue and the pressure to use alternative sources of energy will rise, driven by the sociocultural segment of the environment because of the carbon emissions produced by such hydrocarbons. The value to society of hydrocarbons is that it accelerates development and deployment of clean technologies for transport, industry and power according to the IEA. Government policies could include hydrogen use in national decarbonisation plans, public research and development funding and adopt transmission tariff exemptions for electrolysers. Technology changes have also affected many companies in this industry. Gas drilling and fracturing (fracking) have dramatically increased gas reserves and may provide a substitute for other CO2 emission-producing resources such as coal. Problems with fracking include the potential effects on water tables, and thus farming, so there is widespread opposition to this technique. The Lock the Gate Alliance in Australia is one example of such farmer-driven activism. The Arctic is another frontier for exploration, despite the enormous environmental risks of drilling in this fragile ecosystem. BP has worked there in cooperation with the Russian Government-owned company Rosneft. In 2019, BP reported that it had a 19.75 per cent shareholding in Rosneft, one of Russia's largest oil and gas companies, which has both upstream and downstream operations. Exxon-Mobil also had a US$700 million deal with Russia, which was eager to proceed because the country needs oil. The prospects are enticing - the Kara Sea has reserves estimated at US$900 billion, exceeding Saudi Arabia's reserves. But the Exxon-Mobil deal came unstuck in mid-2015 because of events in the political sphere, when Western financial sanctions were enacted in response to Russia's takeover of the Crimean Peninsula. As these examples demonstrate, assessing the influence of various segments of the external environment is critical in ensuring future success for any organisation. This is especially true for energy organisations, which are part of a global integrated process of extracting energy. refining various products and distributing them around the world. The economic rise of China and India, coupled with the rise of Brazil as an energy power, and Russia's energy reserves, is a significant influence in world markets. Balancing this are increasingly high-profile environmental groups aided by the power and reach of social media. Understanding how these complex processes work and how to deal with these segments of the external Page 3 of 3 - ZOOM + environment is critical in formulating successful strategies to manage global environmental forces. The external world for oil exploration is especially complex and very uncertain. Many forces are at play: there is new technology allowing deep well exploration; there are ever-better- organised environmental groups; governments are sensitive to environmental issues; unpredictable international events impact on permissions; competition is fierce for new areas to exploit; fracking is now common, and productive; alternative energy sources are developing quickly; and there still is a demand for oil albeit at a low price (how low can it go?). The situation with low prices threatens the stability of the industry that will remain central to the functioning of the global economy. Oil companies still face the challenges of investing to offset natural production declines and to meet future growth. Global capital expenditure by exploration and production companies in 2020 is forecast to drop by 32 per cent, the lowest level for 13 years. The reduction of financial resources will undermine the ability of the oil industry to develop several of the technologies needed for clean energy. transitions around the globe. The strategists in oil companies must remain very alert indeed. Drilling for Oil: Risks and Rewards Page 1 of 3 - ZOOM + British Petroleum (BP) has had experience of disasters in drilling; however, because of the demand for oil and issues with supply from the Middle East, there is continuing investigation and exploitation of oil reserves that are difficult to access. The Deepwater Horizon spill by BP in the Gulf of Mexico in April 2010 was the largest accidental offshore spill in history, at 206 million gallons. One of the main challenges for the organisation's strategic leadership was to understand what the external environment's effects were on the organisation and to predict how its future strategic actions might lead to success. The Gulf disaster has not deterred BP. It still explores in difficult situations. In 2016, BP was planning to go ahead with a controversial US$1 billion-plus frontier exploration campaign in the Great Australian Bight, off the coast of South Australia, in the face of mounting concern from environmental groups, and despite a tumbling oil price that has deterred other explorers around the country from drilling. US giant Chevron also has a permit to drill in the region, as does Santos, a local oil company. Following the Deepwater Horizon accident, BP recovered to grow as a better-disciplined organisation, one that delivered consistently for 12 consecutive quarters. BP made a profit of US$10 billion in 2019 and operating cash flow was strong at US$26 billion for the year. BP's head of exploration for Asia-Pacific, Bryan Ritchie, said that while the oil company has cut back on exploration in some regions, it wants to go forward in Australia because of the large potential oil price on offer. However, the company is spreading costs, and risk, by selling a further stake in the venture, intending to cut its 70 per cent holding to 40 or 50 per cent. The project is aiming to drill 2.5 km underwater. It will cost US$600 million for four wells, and in addition BP is having a US$755 million drilling rig built in South Korea. The financial risks are huge. Peter Owen, the South Australian director of the Wilderness Society, pointed to huge community concern about the drilling plans: 'We don't need a Gulf of Mexico disaster in the Great Australian Bight'. The Gulf catastrophe will clearly be easy to use as part of a media campaign by environmentalists. In 2020, the Chair of BP, Helge Lund, noted to shareholders that 'We enter a new decade with a new company purpose: to reimagine energy for people and our planet." In 2019, the BP board of directors recommended that shareholders support a special resolution requisitioned by Climate Action 100+ on climate change disclosures. The economic segment of the general environment will continue to produce demand for energy, especially with the rise of emerging markets such as China and India; thus, exploration for hydrocarbon products will continue, at least while social forces stay favourable to this. The Global Energy Review 2020 by the International Energy Association