8.8. The Oil Producers' Microworld
The oil producers' microworld is a gaming simulator that was developed as an extension of the project with Royal Dutch/Shell.[] The opening screen is shown in Figure 8.27. The microworld contains the oil producers' model complete with all its feedback loops and equation formulations except for one change in the independents' sector. Capex investment policy is opened up so that game players can take the role of top management responsible for upstream investment in commercial oil companies such as Shell, ExxonMobil and BP Amoco. In this role, players experience the difficulties of managing long-term investment in an uncertain and volatile industry against the backdrop of the economic, technical and political forces that shape supply and demand in global oil markets. The objective, over a 25-year period, is to maximise cumulative net income (profit) by making yearly upstream investment decisions. Players compete against OPEC and may face changes in industry demand as well as production squeezes and gluts.
[] There were four phases in the life of the oil producers' project. The first phase was model development, which happened in the period 1988–1989 as an input to Shell's 1989 scenario round (Shell Group Planning, 1989). This work took place under the guidance of Kees van der Heijden who was then head of the scenario team at Shell International, London, within a department known (at the time) as Group Planning. Model conceptualisation was led by John Morecroft and the model development team included Kees van der Heijden, Ged Davis (a member of the 1989 scenario team) and Andrew Davis (who had been seconded to the team from the business consultancy department of Shell UK).
The second phase was translation of the model into a microworld for internal Shell management training programmes, in the period 1990–1992. The original interface design was carried out by Linda Morecroft in a language called Microworld Creator (Diehl, 1992). The integration of the microworld into the training programmes was carried out by John Morecroft in collaboration with Brian Marsh, a senior member of Group Planning. Samples of the interface and experiences from the training programmes are reported in Morecroft and Marsh 1997.
The third phase was the use of the oil producers' model in Paul Langley's PhD dissertation at London Business School, in the period 1993–1995. The purpose of the thesis was to study user learning in gaming simulators (Langley, 1995). The research required a completely new graphical interface suitable for controlled experiments on user learning. Paul Langley collaborated closely with Erik Larsen (then a research fellow at London Business School) to develop the interface in Visual Basic before going on to design and execute his experiments. He also simplified the user controls. Originally there were the five sliders depicted in Figure 8.18. The thesis microworld had just one control - the capacity approval decision.
The fourth phase, in the period 1995–1997, involved revisions to the original oil producers' model to take account of structural changes in the oil industry since 1988. The most dramatic and significant change was the opening up of Russian oil fields to global markets, stemming from the break-up of the Soviet Union and the fall of Communism. It was fortunate that Ged Davis, a member of the original model development team, was by then back at Shell Centre and able to offer expert advice on how best to incorporate Russian oil into the model. The result was a new model (called Oil World 1995 to distinguish it from the original Oil World 1988) that captured Russia's vast oil reserves as an extension of the commercial reserves available to independent (non-OPEC) producers. Though Russian oil was treated in the model as commercial oil, there were nevertheless political strings attached to the timing of its exploitation. Ged Davis' conceptualisation of Russian oil fields fit very well within the model's existing architecture. The necessary changes required the addition of only six new equations to the existing 100 equations portraying industry structure.
Figure 8.27. The opening screen of the Oil Producers' Microworld
The microworld has been designed with a graphical interface that displays reports from each of the industry's main producer groups (independents, the swing producer and opportunists), as well as graphs and tables to aid decision making. There is the option to start the simulator in either 1988 or 1995 in order to appreciate how the oil world was changed by the break-up of the Soviet Union and the subsequent availability of Russian oil in the global market. There are several pre-programmed industry scenarios from which to choose, based on plausible combinations of the scenario parameters outlined above. The base scenario 'Global Stability' is selected by default. You can select from a menu of six scenarios in 1988 and from a menu of seven scenarios in 1995. Among the 1988 options are 'Green World' and 'Political Turmoil in OPEC'. Among the 1995 options are 'Russian Oil Bubble' and 'Asian Boom and Bust'. The microworld can be found in the CD folder for Chapter 8 together with a user guide and tutorial.