Technological Change and Depletion in Offshore Oil and Gas (original) (raw)

Technology and petroleum exhaustion: Evidence from two mega-oilfields

Energy, 2007

In this paper we use results from the Hotelling model of non-renewable resources to examine the mainstream view among economists that improvements in recovery technology can offset declines in petroleum reserves. We present empirical evidence from two well-documented mega-oilfields: the Forties in the North Sea and the Yates in West Texas. Patterns of depletion in these two fields suggest that technology temporarily increases the rates of production at the expense of more pronounced rates of depletion in later years -in line with Hotelling's predictions. Insofar as our results are generalizable, they call into question the view of most economists that technology can mitigate absolute resource scarcity. This raises concerns about the capacity of current mega-fields to meet future oil demand.

Regional resource depletion and industry activity: The case of oil and gas in the Gulf of Mexico

Socio-Economic Planning Sciences, 1986

Stable and declining oil and gas prices have changed the industry's price expectations and, along with depletion of promising exploration prospects, has resulted in reduced exploration. Even with intensive additional exploration, production in most U.S. areas is expected to decline. What does this imply for the drilling and petroleum industry suppliers in particular regions? How should planners in government and the private sector project and incorporate the consequences of these changes in their strategies? This paper answers these questions for the industry operating in the offshore Gulf of Mexico. Future oil and gas production, as well as demand for offshore drilling and production facilities, are shown to depend on the size distribution of undiscovered fields, their associated production costs, and oil and gas prices. Declining well productivity is a consequence of development of progressively smaller fields so that long-run drilling demand should not decline in proportion to the expected production decline. Calculations show a substantial payoff to the drilling industry, in terms of potential demand increases, if it can develop and implement cost reducing technologies. Implications of these results for other offshore producing areas such as the North Sea are also discussed.

Technological Change, Population Dynamics, and Natural Resource Depletion

How does technological change affect the depletion of non-renewable natural resources? We argue that to answer this question it is necessary to account for the interaction between skill-biased technological change, population dynamics and their effects on natural resource use. Skill-biased technolgical change leads in a non-malthusian world to a decline in the long-run growth rate of the population. Furthermore, skill-biased technological change is associated with a lower long-run depletion rate of natural resources, whereas the transition to a long-run equilibrium is characterized by an inverse relationship between the growth rate of the population and the depletion rate of natural resources. In the context of a shrinking or stationary population, the emergence of sustained economic growth depends on the existence of positive intertemporal knowledge spillovers with respect to research and development.

Oil Prices, Exhaustible Resources, and Economic Growth

This paper explores details behind the phenomenal increase in global crude oil production over the last century and a half and the implications if that trend should be reversed. I document that a key feature of the growth in production has been exploitation of new geographic areas rather than application of better technology to existing sources, and suggest that the end of that era could come soon. The economic dislocations that historically followed temporary oil supply disruptions are reviewed, and the possible implications of that experience for what the transition era could look like are explored.

Decline and depletion rates of oil production: A comprehensive investigation

2014

Two of the most fundamental concepts in the current debate about future oil supply are oilfield decline rates and depletion rates. These concepts are related, but not identical. This paper clarifies the definitions of these concepts, summarizes the underlying theory and empirically estimates decline and depletion rates for different categories of oilfield. A database of 880 post-peak fields is analysed to determine typical depletion levels, depletion rates and decline rates. This demonstrates that the size of oilfields has a significant influence on decline and depletion rates, with generally high values for small fields and comparatively low values for larger fields. These empirical findings have important implications for oil supply forecasting.

Directed Technical Change as a Response to Natural Resource Scarcity

Journal of Political Economy, 2021

How do markets economize on scarce natural resources? With an application to fossil energy, we emphasize technological change aimed at saving on the scarce resource. We develop quantitative macroeconomic theory as a tool for interpreting the past and thinking about the future. We argue, first, that aggregate U.S. data calls for a short-run substitution elasticity between energy and the capital/labor inputs that is near Leontief. Given this fact and an aggregate CES function, we note that energy-saving technical change took off right as the oil shocks hit in the 1970s. We rationalize this observation using a theory that views technical change as directed: it can be used to save on different inputs and, hence, the long-run substitutability between inputs becomes higher than Leontief. For our application, we estimate long-run dependence on fossil energy-measured by its factor shareto climb to a little below 10%; absent endogenous technical change directed toward energy-saving, it would go to 100%.

Modeling Petroleum Productivity in the U.S. Gulf of Mexico Outer Continental Shelf (OCS) Region

Energy Studies Review, 2001

Productivity generally refers to the amount ofoutput that can be produced with a given input. However. because measures ofinputs and outputs can vary considerably, several indicators ofproductivity in petroleum resource development are possible. The more meaningful indicators ofproductivity that relate directly to upstream activities include drilling success rates, average discovery size, finding rates, and yield per effort. In this paper, we examine the peiformance ofthe oil and gas upstream industry in the GulfofMexico DeS region using these indicators. Further, using econometric modeling techniques, we determine empirically the effects of depletion, technical progress, economic and policy incentives, structural changes and market conditions on the returns to exploration activities in the u.s. Gulfof Mexico Des. The model results confirm expectations ofdiminishing returns to wildcat drilling on the DeS due to resource depletion, while the combined effects ofeconomic incentives, institutional restructuring, and technical progress have mitigated significantly the declining trend in wildcat drilling productivity in the region.

Depletion and the future availability of petroleum resources

2012

In the last edition of the Energy Journal of the International Association of Energy Economists an article was published that concluded that the recent high oil price spike was just an aberration, as there is plenty of low cost oil out there waiting to be produced. This claim was made by a group of scientists from the Catholic University of Chili and Colorado School of mines, R. Aguilera, R. Eggert, C. Gustavo Lagos and J. Tilton. In this post I critically review this study showing that many important factors have not been taken into account by Aguilera et al. (2009), making it highly probable that their conclusion is incorrect.

Fueling growth when oil peaks: Directed technological change and the limits to efficiency

European Economic Review, 2013

While fossil energy dependency has declined and energy supply has grown in the postwar world economy, future resource scarcity could cast its shadow on world economic growth soon if energy markets are forward looking. We develop an endogenous growth model that reconciles the current aggregate trends in energy use and productivity growth with the intertemporal dynamics of forward looking resource markets. Combining scarcity-rent driven energy supply (in the spirit of Hotelling) with profit-driven Directed Technical Change (in the spirit of Romer/Acemoglu), we generate transitional dynamics that can be qualitatively calibrated to current trends. The long-run properties of the model are studied to examine whether current trends are sustainable. We highlight the role of extraction costs in mining.

Fuelling growth when oil peaks: growth, energy supply, and directed technological change

A model of endogenous growth and non-renewable resource extraction is presented. Resource owners endogenously determine the extraction path and firms endogenously determine the rate and direction of technological change. We explore under what conditions the short-run dynamics of the model can replicate the following main trends in the OECD over the last decades: an increase in per capita energy supply, a decrease in the cost share of energy in GDP, a decrease in energy cost relative to labor cost, and reductions in energy use per unit of GDP. We also study the long-run properties of the model to examine whether current trends are sustainable.