Innovation and Economics Work, Even in Oil

There is a must-read article in the Times on Monday looking at how changes in technology — combined with, yes, higher prices — are leading to significant improvements in extraction rates from both new and declining oil fields. The main technologies highlighted are three-dimensional imaging and steam (or carbon dioxide) injection, which aren’t as existing some newer stuff going on, but you’ll get the picture:

At the Kern River field just outside of Bakersfield, millions of gallons of steam are injected into the field to melt the oil, which has the unusually dense consistency of very thick molasses. The steamed liquid is then drained through underground reservoirs and pumped out by about 8,500 production wells scattered around the field, which covers 20 square miles.

Initially, engineers expected to recover only 10 percent of the field’s oil. Now, thanks to decades of trial and error, Chevron believes it will be able to recover up to 80 percent of the oil from the field, more than twice the industry’s average recovery rate, which is typically around 35 percent. Each well produces about 10 barrels a day at a cost of $16 each. That compares with production costs of only $1 or $2 a barrel in the Persian Gulf, home to the world’s lowest-cost producers.

The killer quote is at the end though:

“That’s why peak oil is a moving target,” [Chevron engineer Jeff] Hatlen said. “Oil is always a function of price and technology.”

I stand by my prediction that oil may one day hit $100, but I bet it touches $30 first.

[via NY Times]

Related posts:

  1. The Economics & Emotion of Global Warming
  2. Kill A9
  3. So You Say You Want a Billboard
  4. How I Work
  5. Entrepreneurship, Innovation, and Psychopathologies

Comments

  1. Tom M says:

    Paul,
    $100 bbl Oil will happen soon due to International tensions. $30 bbl oil won’t happen due to the fact that $16 bbl production costs will become the norm for a shrinking pool of oil. Take Gahwar (Saudi Arabia’s largest field) off line and all the enhanced recovery in the World won’t help us. The trend is down and all ER does is extend the glide slope a few degrees.

  2. Joe says:

    Woah there Tom on the pessimism.
    Tar Sands, Oil Shale and massive reserves under the Gulf of Mexico. We haven’t even come close to hitting peak oil. (Add to that taking the technology Chevron is talking about and extending to other oil fields.)