Jul

16

 A short article in the July 12 issue of The Economist, When the Wells Dry Up, takes an upbeat look at future prospects from deep-sea oil field technologies developed in Aberdeen, Scotland, around North Sea oil operations. The story surveys Aberdeen's subsea technology industry that now earns half its total $3.4 billion from exported technology and services.

But the title of the article and the background claim of North Sea oil running dry is curious. The Economist cites a recent International Energy Agency statement that the drop in North Sea production has been "steeper than expected." The next expert quoted is a "former offshore worker" who opines: "There'll be nothing here in 15 years time." Britain was the world's sixth-largest oil producer in 1998 and has now fallen to 12th place.


This chart
shows the steep drop. The sky is apparently falling on North Sea oil production. But wait, what is that shaded part that starts right after the uptick in actual oil production? Was the uptick forecast in earlier projected declines of North Sea production? Oil production also fell significantly from 1985-87 or so. Were further production declines predicted then? (Or maybe the projected declines reflect the British government recent decision to raise corporate taxes on oil firms to 50%, while other firms are charged 30%.)

A sidebar story, "Every Last Drop," explains that though total North Sea production so far has been 34 billion barrels, some 20 billion remain untapped deep under the sea. "Big finds are the exception" assures The Economist, "and the rise in output will be only a small blip in the downward trend." Production this year is up to 3.1 million barrels a day from 2.9 million in 2006 as the new 500 million barrel "Buzzard" field went into production. Nearby, the 170 million barrel Jura field is due to start producing in 2008.

"Every Last Drop" notes that oil companies are considering exploring west of the Shetland Islands where "billions of barrels of hydrocarbons, mostly natural gas" are thought to reside.

Is it at least possible that oil exploration and technology development are influenced by oil prices? I realize this is wild speculation on my part, but what if we compare the North Sea production chart with one of world oil prices?

North Sea production peaked in 1998. You can find 1998 on the chart of Crude Oil prices, it is the downward spike that thrust deep into the exploration budgets of world oil companies. Oil dropped below $15 a barrel in 1998, after jumping above and below $25 for ten years. At $15 a barrel for oil, how enthusiastic were oil companies to expand North Sea production, or exploration and production anywhere else in the world?

Most companies stopped or slowed research and development of the kind of cutting-edge (!) technologies needed to develop difficult oil fields. The steep rise in oil prices in recent years looks a lot like the steep rise from 1973 to 81. As oil companies commit tens (or hundreds?) of billions of dollars for new exploration and development services and technologies, they must still cast a wary eye on the 1981-87 downside of the last upward crude oil spike.

The oil industry is a technology industry more than a natural resource industry. There is not much "natural" about extracting hydrocarbons from thousands of feet under the sea or boiling them from tar sands in frozen Canada. Technology responds to prices, though with a lag as scientists and engineers are pulled off other projects (or out of retirement!) to focus again on extracting hydrocarbons from deep earth and sea. (For realistic and optimistic articles on the energy and the environment, I recommend Robert Bradley's EnergyRealism website. And for a sound energy textbook, see his Energy: The Master Resource). 


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