Seacoast NRG

A recent New York Times article struck an optimistic note on oil production, stating that thanks to new extraction technologies, “forecasts that the world’s reserves are drying out have given way to predictions that more oil can be found than ever before.”  The source of this new bounty of oil is not hidden in the Arctic, the deep oceans, or some other exotic locations.  Rather, some analysts feel the greatest resource for new oil will be…in old wells.

Oil production on a given field is limited both by the available technology and the available funds.  Over the 150-year history of the oil industry, much of the easily found, and easily recovered, oil has already been extracted.  However, even in very old oil fields it is possible to still recover oil.  Using normal, and relatively inexpensive, means of extraction typically allows the recovery of anywhere from one-tenth to about one-third of the oil contained in a given field.  The remaining two-thirds are usually too expensive to extract, or consist of a lower quality, heavier oil that is also more expensive to process.  Improvements in technology, such as water, steam or gas injection, computer modelling and imaging, and seismic monitoring help to provide the means for greater extraction yields, while high oil prices make the application of these technologies (so called secondary and tertiary recovery methods) profitable.

If technology and price will allow, some fields can be coaxed into yielding double the normal extraction rate, and perhaps reaching as high as 80% of the total oil contained within the field.  As noted in the Times’ article, this has been the case with the Kern River oil field near Bakersfield, California, which saw an enormous increase in the daily oil production rate after application of steam injection. 

But that was in 1964.  The Kern River field, while still producing a lot of oil, is in steady decline, and reflects the overall decline of US oil production in general (see chart).  And while some technologies, such as computer imaging and satellite monitoring of production fields, did not exist 10 or 15 years ago, it’s not like the oil industry has been lame in the application of technologies as they have come along.  Water, steam and gas injection technologies are all decades old.  The oil price shocks of previous decades also stimulated oil production and the application of technology; yet nothing has arrested the overall, 36-year decline decline of US production.  Why should we think any differently now?  And why should we think that world oil production will not follow the peak model established by US production?