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The world today is heavily dependant on oil for the running of most economies. This means that most economies around the globe are normally affected by oil prices because it influences their bottom-line operations. Oil prices have been on an upward trend because of increased demand especially brought about by the economic development of new world powers such as China and India (Harding 2011, p. 1).
However, since the world’s oil production is not growing at the same pace, the existing production capacity has been overstretched, leading to increased oil prices. Nonetheless, it is important to note that oil prices are normally very sensitive to world events, which either cause an increase or decrease in pump prices. Such is the case evidenced by the recent Libyan conflict which has consequently led to an increase in international oil prices. The diagram below represents the volatility and increase in oil prices over recent decades
However, the production of oil is also heavily reliant on how it is produced. Exactly, this refers to technological investments and the geographical location of production.
Technology is quite essential in the production of oil because of several reasons. For starters, technology has been advanced as one of the methods through which oil drilling companies can use to reduce the environmental impact of oil production (Schlumberger Limited 2010. p. 9). Companies such as Shell have been at the forefront of adopting new technology for this purpose. Technology has also been extensively used to improve oil drilling because access to oil reservoirs depends on the level of technological input.
The above factors withstanding, this study will dig deeper into the impact new technology and geographical frontiers have on oil production. This will be analyzed by overseeing how production, supply, and demand is linked with new technologies and how the new technologies would affect oil production in the coming decades. This study will also analyze the impact of new technology on oil drilling, well injection and gas transportation as a new subsection of the study. Later, the impact of geographical location on oil production will be done and this is to be summarized with a conclusion of the main points of the study.
Impact of New Technology on Oil Production
New technologies have a significant impact on the supply of oil around the globe. As mentioned earlier in this study, new technologies affect the production capacity of various companies engaged in oil production (Klachkov 2009, p. 2). Companies that employ new technology are bound to increase their production capacity while those that do not have enough technological investments have a lower production capacity. A higher production capacity translates to increased oil supply and an increased oil supply would translate to an increased demand for oil. If the supply of oil significantly increases, then this implies that economic activities will be boosted.
It is therefore correct to note that the entire cycle is dependant on new technology. In the coming decades, new technology is bound to affect oil production by a significant degree. The impact is however positive because it is estimated that the employment of new technology is significantly bound to increase the world’s production capacity by a significant degree (Klachkov 2009, p. 2). For instance, in the United States (US), it is estimated that in the coming decade, and employment of new technologies in oil production is bound to increase the country’s production capacity by more than 200 million barrels of crude oil (a move that is set to decrease the country’s reliance on crude oil imports by more than 50%) (China Daily 2010, p. 3).
Throughout the world, Alaska is quickly gaining the reputation of the drilling zone where new technology is mostly applied (Bradner 2005, p. 1). This is the case observed with the application of the coil tubing technique while other drilling technologies (such as the horizontal drilling) are also controversially said to have started in Alaska. Coil tubing wells have been made with truck-mounted-coil-tubing wells as opposed to conventional rotary drills, thereby significantly reducing the cost of oil production normally envisaged in the past. Horizontal drilling wells have also been done through lateral drilling to tap thin layers of oil-bearing rock strata, thereby leading to increased production of oil (Bradner 2005, p. 1).
Multilateral drilling is done through the combination of several wells into one so that oil production is increased while production costs are lowered at the same time. Underbalanced drilling is also a new oil production technology where the pressure registered inside the wellbore is lowered so that it does not surpass the fluid pressure in the formation being drilled (this is contrary to the conventional practice where the wellbore is kept at a pressure above the formation to prevent the formation fluid from entering the well) (Bishop Interactive 2009, p. 1).
This drilling technique has several advantages over the conventional method in that: it reduces the chances of formation damage that is synonymous to the conventional drilling technique; it increases the rate of penetration (to reach the oil deposits); it reduces lost circulation (reducing drilling mud flows into the formation) and reduces differential sticking as well (Bishop Interactive 2009, p. 1). These advantages collectively increase oil production and in the same manner reduce the risks associated with the same process (thereby reducing production costs).
Directional drilling is also another widely acclaimed new technology employed in oil production because it increases the exposed section for drilling (since it is drilled at an angle, thereby leading to the increase in drilling capabilities where vertical drilling is deemed impossible) (Schlumberger Limited 2011, p. 1). The following diagram best explains how it works.
Such can be the case where drilling is to be undertaken under a town, lake and any other landmark that should not be tampered with. The new technology also allows for the grouping together of wellheads and in the same manner, it also allows for the drilling of a relief well. These advantages have been known to increase the production of oil (Schlumberger Limited 2011, p. 1). Deepwater drilling occurs in depths of more than 500 feet and it increases the production of oil by a significant degree (Los Angeles Times 2011). For many years, the feasibility of undertaking deepwater drilling has been low but due to increasing energy demands across the globe, many companies are now employing the new technology. This is the situation evidenced in the Gulf of Mexico where more than 600 deepwater wells have been dug (Los Angeles Times 2011). The following diagram explains how deepwater drilling works.
Coil tubing technique, horizontal drilling, Directional drilling, and deepwater drilling are all said to increase oil peak but a number of them have significant concerns. For example, directional drilling has been known to be a method through which oil thieves steal oil from another geographical location. The Kuwait and Iraq conflict was brought about by claims that Kuwait was using directional drilling to steal oil from Iraq (Peter 2010). Deepwater drilling has also been known to cause significant environmental concerns because it causes a threat to aquatic life as a result of oil leaks that contaminate the sea. Such is the case evidenced in the recent BP oil disaster which caused widespread spillage of oil on the sea, thereby leading to the death of many fish and birds.
Enhanced oil recovery (EOR) is a new technology estimated to increase oil production by significant margins of more than (30-60) % of the normal production capacity (Renewable Energy institute 2005). It occurs through several methods including thermal techniques, microbial injection, chemical injection and gas injection (all of which use different techniques to increase the production of crude oil).
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The gas injection is the most common technique used and it reduces the viscosity of the oil produced through the mixing of crude oil with gas (Lee 2008, p. 1). Several gases are used in this process and they include carbon dioxide, natural gas, and nitrogen. Under chemical injection, alkaline or caustic substances are normally added into the reservoirs, thereby leading to the production of a soapy substance which eventually lowers the interfacial tension of the crude oil to lead to increased production of oil (Burgess 2006).
Under microbial injection, small microbes are normally added into the reservoirs to react with the existing hydrocarbon molecules to eventually result in the production of biosurfactants which also lead to increased production of crude oil (Bryant 1989, p. 1). Lastly, the thermal injection technique is used to reduce the viscosity of the oil by heating it to reduce the sweep and displacement efficiency which also eventually leads to the increased production of oil in the long run (Brook 1998, p. 1).
Though EOR has been evidenced to have a positive correlation with oil peak, there have been several environmental concerns about its use. Firstly, it is noted that EOR leads to the production of brine on the earth’s surface and this causes a potential problem to the human water supply system, considering it may cause water contamination (Engineering Students United 2009, p. 10). This is because brine is known to contain toxic metals and radioactive substances and therefore if no control is observed, drinking water may be significantly affected (for example in the US, EOR is controlled by the nation’s environmental regulatory authority) (Engineering Students United 2009, p. 10).
The transportation of crude oil needs to be done to move unrefined oil from the production points to the refineries. Later, the refined oil needs to be moved from the refineries to the retail outlets and this involves some methods including pipelines, trucks, and trains. However, this summary encompasses traditional methods of moving oil because new methods have come up from the development of new technology.
The liquefied natural gas (LNG) is one such method of oil transportation which is essentially gas that has been changed into liquid form to take up less space during transportation (Chevron 2010, p. 1). It is estimated that LNG takes only 1/600th of the volume gas would take to be transported and stored when it is in gaseous form (Chevron 2010, p. 1). This new technology has made the transportation of gas quite cheap and cost-effective; more so, in areas where pipeline networks for transportation have not yet been set up. This development has led to a significant reduction in the prices of LNG.
Carbon dioxide can also be used to transport petroleum products when it is mixed with gas to produce a stable form of carbon (Tanaka 1992, p. 1). This is true because carbon dioxide in its natural form is normally unstable (this is the form evidenced to cause environmental pollution) but when it is combined with gas, it becomes stable. The risks associated with transporting gas are therefore greatly reduced when gas is mixed with carbon dioxide. This, therefore, means that the cost of transporting gas becomes cheaper because the risks of transportation are greatly minimized.
The above application of new technology in oil transportation is bound to increase oil peak but there have been significant concerns relating to their applications. More so, LNG has been identified to have the potential of causing human respiratory concerns because it releases nitrogen oxide (Geo-Processors Pty Limited 2010).
There have also been extensive concerns regarding the amount of carbon dioxide LNG produces, as can be seen from extensive opposition to the establishment of an LNG plant in California where environmental groups such as Pacific environment equated the carbon dioxide emission of the LNG plants to coal power plants (Geo-Processors Pty Limited 2010).
It is also estimated that the natural gas required in LNG production and transportation amounts to approximately 21% -41% more of carbon dioxide emission evidenced in the burning of natural gas while the conversion of LNG back to its previous state is also another avenue through which greenhouse gasses are emitted (Geo-Processors Pty Limited 2010). Apart from the environmental concerns, LNG has also been associated with several major accidents resulting from explosions during transportation and some of them are the 1944 accident in Ohio Cleveland where over 100 people perished; 1979 accident in Lusby Maryland and in 2004 in Skikda Algeria where more than 20 people were killed and over 50 people injured (Huge Settlements 2005).
How Geographical Frontiers Affect Oil/Gas Production
Oil is known to be produced in given geographical areas. For instance, a lot of oil is obtained from the Arabian Gulf region as a unique geographical area that is known for oil production but oil is also obtained from certain geographical areas like Alaska (Salas 2010, p. 1). However, these are not the only geographical regions on earth with oil because pockets of the ‘black gold’ are scattered all over the earth. The relationship between geography and oil production is that not all oil is produced in the same manner since some geographical regions are known to produce sweet crude while others are known to produce sour crude (Salas 2010, p. 1).
For instance, Venezuela has been known to produce sour crude while Iraq has been known to produce sweet crude. The geography of oil production has been evidenced to cause a lot of international conflicts. For instance, Iraq accused Kuwait at one time of stealing its oil by using vertical drilling methods to tap Iraq’s oil. This later fueled the gulf war. However new developments in oil exploration expose the fact that there may be new geographical areas that are potentially oil-rich. For example, the US geological survey notes that the Arctic Circle potentially holds some of the world’s biggest reservoirs of unexploited oil (Li 2009, p. 3).
It is estimated that the Arctic Circle may be home to more than ninety billion barrels of oil and this is probably true because oil explorations are done in Russia, Canada and Alaska already show that there are possibly 400 oil fields towards the North of the Arctic Circle (Li 2009, p. 3). However, the most potential areas in the Arctic Circle are said to be in Green land and the Barents Sea (Li 2009, p. 3). In the Gulf of Mexico, oil is said to exist at staggering depths and companies such as British Petroleum (BP) have been at the forefront in drilling this oil. However, the company’s success can be mainly attributed to the heavy technological investment done to reach the deep reservoirs of oil in the region. This is the reason why the Thunder horse field has had significant success in the past (Salas 2010, p. 1).
Technology is a very important tool in oil production. This is true because crude oil is not produced in one way. It is evidenced that some of the oil produced is obtained in deep-sea wells while others are obtained on dry land. Technological importance is especially exacerbated by the fact that the world’s oil deposits are slowly being depleted and the existing ones are buried deep within the surface of the earth. Technology has therefore been useful in increasing the production of oil and consequently increasing its supply globally. The same can also be said of transportation because new technological ways have been devised to facilitate the transportation of oil in the safest and efficient ways possible.
This potentially reduces the cost and risks of transporting oil, thereby leading to the reduction of oil prices. From this study, we also see that geography affects the production of crude oil in the sense that different geographical areas lead to different production of crude oil. Because of this difference, different regions either produce sweet crude or sour crude. Nonetheless, we see that the exploration of unexploited oil reservoirs in areas like the Arctic Circle heavily depends on the technology investments to be made because the field is vast and some of the reservoirs are very deep. Comprehensively, we can conclude that technology plays a vital role in the access, production, and transportation of oil.
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