While I definitely agree with that in terms of explicit character driven stories, that isn't the only type of narrative that can be told.

In a traditional explicit narrative, most of the plot elements, places, events, things, etc. are mcguffins that only exist in service to the characters. They create a backdrop and then disrupt the norm so we can see how the characters react and interact in interesting ways.

For that to be interesting, you need to have very well crafted characters. To have very well crafted characters, you need to have very specific buildups of conditions and reactions, which having an open world or branching paths in games actually explicitly works against. So for this type of story, the more open your game is the more handicapped the explicit narrative will be.

However, there's another type of narrative that is beginning to become possible with modern technology that I call emergent narratives - ones that come about through the player's direct interaction with the mechanics rather than being explicitly stated. This would include all of the crazy stories you hear about stories in Dwarf Fortress, Crusader Kings, etc.

The thing about these types of stories is they are almost entirely event focused, not character focused. They usually involve a set of nameless (or at least faceless and personality-less) NPCs that had a bunch of crazy shit happen to them that fit together in a cool arc that the player can fill in the gaps.

The unique thing about this type of narrative is that they involve the player to a much greater degree. Usually the player is directly experiencing it rather than having the story told to them, so it can feel very impactful in ways that explicit narratives can't easily deliver on.

This is where I think procedural generation could (and in some cases already has) come in to play. Shadow of Mordor is the most recent easy example - they actually crafted special mechanics to encourage and allow for results from mechanics to come to life and impact the overarching narrative. They did try to incorporate it with explicit narrative elements, but they were certainly trying to create a framework where this sort of emergent narrative interaction could be encouraged.

This is where I'm guessing most of this style of thing is going to go. In a limited system (which every game is by definition) you can make educated guesses as to what types of emergent narrative elements will be created, and then design your mechanics to encourage it. Additionally you can try to create algorithms to identify potential threads and elements when they do occur and do some minor explicit narrative work to frame events in a more "official" manner. If you get good at detecting when elements occur, you could then move toward ramping up frequency, likelihood, and magnitude of events in order to help create a more natural intensity curve for a narrative as well.

We're never going to see games like Silent Hill, Metal Gear Solid, Final Fantasy, or any other character driven narratives have great success in terms of procedural generation. Emergent narratives I could easily see it working with some systems development over time.