Could Innovation and Engineering Cause Dropping Oil Prices?

The recent drop in oil prices naturally has produced economic winners and losers, and price speculators and pundits are lining up conventional producers against those behind American-drilled Shale oil. Yet, questions remain about how the world is over-supplied with oil only a few years after we supposedly passed peek oil and survived oil prices topping $140 per barrel. Discounting the anticipated demand softness due to economic activities in Europe and Asia, technology is playing a strong role in finding, producing and using energy across the full range of industrial activities.

Production by national oil companies, availability of cheap capital, positive cash flow and new technologies have helped increase oil production from many resources. The supply side chances, even at lower prices, only will be strengthened because technology is making it possible to produce from resources once thought impossible — and physically unfeasible independent of the price.

Take, for example, combining unconventional resource development of both onshore shale and ultra-deep water, as well as increased production from mature and smaller oil fields. These developments only remain possible because of remarkable new equipment and techniques, including horizontal drilling, high-pressure and high-temperature equipment in deep reserves, subsea power, artificial lift, enhanced oil recovery, in-situ heating, and near-wellbore production stimulation.

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Technology also is changing how energy is consumed, especially if we focus on oil consumption. Around the world, technology is slashing at the use of oil as a transportation fuel and for industrial applications. This includes fuel efficiency, optimization of heat generation and heat transfer devices, and increasing efficiency of electric motors and drives. On top of this, energy-intensive industries (mining, chemicals, metals, glass) are increasing equipment performance and efficiency, thus further reducing the need for oil as either as a raw material or a heat-generating fuel.

This is all good news — for consumers and energy producing companies. The desire is to have access to and produce safe, clean, reliable, and affordable energy. The conventional oil producers have managed sustainable productions over an extended period of time, and unconventional producers have maintained constant production at lower costs. While oil prices will remain cyclical — and, in the short term, some new projects may be delayed — many oil and gas projects have long time cycles and these trends will continue.

The ability to distribute excess costs from CAPEX and OPEX throughout the supply chain, due to lower prices, and the ability to develop more cost- and energy-efficient equipment and process are driven by companies’ continued focus to improve margins, and meet market demand and environmental concerns. In turn, the drop in prices only should heighten focus on innovation, and research and development.