Technology and petroleum exhaustion: Evidence from two mega-oilfields
Section snippets
The economic view of resource scarcity
A recurring theme in resource economics textbooks is that absolute resource scarcity is not a major concern for economic policy. The standard view is that the price system, by encouraging substitution, exploration, and technological advances, in effect creates more resources as prices increase. In this view, scarcity is properly seen as an economic not a physical concept [1]. The view expressed in a recent text by Hanley et al. [2] is typical:
As a resource gets scarcer, its price will, other
Hotelling revisited
It is only a small exaggeration to say that most contemporary resource economics is a footnote to Hotelling's paper “The Economics of Exhaustible Resources.” [14]. Following Krautkraemer [16], the basic Hotelling equation can be written assubject towhere B[q(t), S(t)] represents gross benefits, C[q(t),S(t)] are the extraction costs; S is the remaining stock, δ is the rate of discount, and q(t) is the time path for
Is extraction technology masking scarcity? Evidence from the North Sea and West Texas
In this section, we present the production paths that followed in the North Sea Forties and the West Texas Yates mega oilfields using historical production data reported by the United Kingdom Department of Trade and Industry and the Railroad Commission of Texas, respectively. We purposely focus on these two well-surveyed and well-documented individual fields—rather than more aggregate examples—so as to acknowledge the strict scarcity of the resource, as assumed in Hotelling's framework.
The
Demand, royalties, and geopolitics: Hotelling once again
We have argued that the evidence indicates that technological change increases production for a while but then the path to exhaustion becomes steeper than it would have been without the new technology. Ceteris paribus, technological change increases resource supply and decreases the resource price for a while but results in sharply higher prices in later periods because the resource is exhausted faster than it would have been without the new technology. This implies that current prices are
Discussion and conclusion
Petroleum resources are not infinite on our planet and in the coming decades increasing pressure will be placed on the ability of oil to supply energy for the world's growing economies. Technological progress has been posed as the major contributor in the coming years to the mobilization of new reserves and increasing the lifetime of present reserves. In this paper, we examined this hypothesis and showed evidence from two well-documented mega-oilfields—the Forties in the North Sea and the Yates
Acknowledgments
We are grateful for the valuable comments provided by Jason Benno, Jerry Gilbert, Charles Hall, John Hallock, Alexey Voinov, and Jack Zagar. We would like to thank the Texas Railroad Commission for providing data about the Yates field. All conclusions and opinions are the responsibilities of the authors.
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2016, Journal of Petroleum Science and EngineeringCitation Excerpt :These can temporarily reduce the decline rate but do not generally raise the total recovery. These techniques rarely access oil that was otherwise physically unobtainable and may presage a higher subsequent decline rate (Gowdy and Julia, 2007). Enhanced oil recovery techniques, such as the injection of steam or solvents (light hydrocarbons, carbon dioxide), can slow decline, and also raise the eventual total recovery (Miller et al., 2009).