Strategic Modelling and Business Dynamics: A Feedback Systems Approach

8.6. Using the Model to Generate Scenarios

Having described the conceptual building blocks and feedback loops of the oil producers' model we are now ready to simulate scenarios. The key to effective scenario modelling is to unfold several alternative futures (each an internally consistent story, but with a different plot and a different ending) in order to challenge conventional wisdom and to encourage users to think how they would act if this future were to unfold. It is important to remember that such simulated futures are not predictions of oil price, supply or demand, nor do they represent official company forecasts. Two simulations are presented below. Each covers a 25-year period from 1988 to 2012 using the version of the model without Russian oil, developed before the fall of the Soviet empire. The model, called 'Oil World 1988' can be found in the CD folder for Chapter 8. I have deliberately chosen to present these archive scenarios in order to show simulations exactly as they were originally presented to the project team. However, it is also instructive to repeat the simulations under the same scenario conditions in 'Oil World 1995'. This more up-to-date version of the model runs over a 25-year period from 1996 to 2020 and shows the profound effect of Russian oil reserves on the global oil market and long-term price dynamics.

8.6.1. Archive Scenario 1: 10-Year Supply Squeeze Followed by Supply Glut

Imagine that in 1988 OPEC had followed a policy in which quotas were ...