Upstream Technology: The Future of the Oil and Gas Industry
In “The Future of the Oil and Gas Industry: Past Approaches, New Challenges,” of 2002, Harry J. Longwell, then Director and Executive Vice President of Mobil Exxon Corporation, acknowledges that there has been a significant decline in oil and gas discoveries since the 1960s and 70s, respectively, yet states his case for an optimistic view of his industry's future. One reason for Mr. Longwell's confidence is the fact that the demand for oil and gas has steadily increased since the 1920s and 50s, respectively, and this trend is expected to continue in the coming decades. The question arises: With plummeting discovery volumes, where will the supply come from? As producers are forced to drill deeper into the ground and venture into deeper waters in areas more remote from the consumers, how will the demand be met?
For one thing, Mr. Longwell believes that previously unaccessible areas will be opened for exploration. This may be because environmental concerns will be mitigated or previous geopolitical hostilities will abate. More significantly, as an engineer, Mr. Longwell has his faith firmly planted in technology and is convinced that technology will play a great role in meeting the world's demand for oil and gas. He's convinced that “many of our future discoveries will come not just from new frontier areas, but also from proven areas, as evolving technology improves our ability to virtually 'see' and distinguish the oil and gas before we drill. ”
The significance of this point of view can not be over-stated.
The average recovery rate of a hydrocarbon reservoir is 40%. This means that of all current and no longer active wells, 60% of their bounty will remain in the ground – unless extraction methods are improved (this is especially true in the US, where over 400,000 oil wells are yielding under 10 barrels per day and upwards of 300,000 natural gas wells are producing under 60 Mcf* per day)1. If only a fraction of the untapped 60% is made available and an equivalent increase to the recovery rate of undeveloped and yet to be found fields is gained, it's perfectly feasible that supply can keep up with demand. For the oil and gas industry, this is a rosy picture indeed.
Of course, not all oil and gas industry leaders share Mr. Longwell's faith in technology. In fact, the industry is better known for its aversion to risk and resistance to change, preferring to stick with the tried-and-true, despite whatever shortcomings may come with it. 3D seismic has drastically improved oil and gas finding rates, but it's taken decades of proof in the field to gain acceptance by the industry as a whole.
* 1000 cubic feet, a unit of measure in the oil and gas industry for natural gas.
Horizontal drilling increases production and reduces the carbon footprint of a well, but it also took decades to gain general acceptance. The general attitude seems to be, “Let someone else take the risk, and we'll see if it really works.”
It seems fair to say that in the coming decades the industry will need to evolve at a quicker pace. Given the current rates of production and discovery, the industry will not have the luxury of decades to implement change. Change must come.
Harry J. Longwell's forecast of a bright future for the oil and gas industry was made in 2002. In April of 2011, Exxon Mobil reported a first-quarter profit of nearly $11 billion, an increase of 69%. Apparently, Mr. Longwell's 2002 prediction was well founded. With nearly half a century of experience under his belt, he probably knows what he's talking about. Based on his word and his record, we can expect the industry to continue to thrive.
The question is: By what means?
Upstream* technology currently under study includes smartdust, nanotechnology, laser well drilling and in-situ refining. Each of these has the potential to change the industry. In the near future, we will either see some of these and/or other innovations become the standards of the industry, or witness the industry's decline.
* The exploration and extraction component of the oil and gas industry.
1) Interstate Oil and Gas Compact Commission: “Marginal Wells: Fuel for
Economic Growth” (2006).