Advances in technology such as seismic imaging with Dawson Geophysical and horizontal drilling with Schlumberger have dramatically changed the economics of oil and gas extraction. The change in oil economics is so profound that the cost structure of hydrocarbon fuels will reverberate through the global energy market and impact pricing of renewables energies and investment decisions. So profound are these changes that the US has surpassed Saudi Arabia and emerged as the world’s largest oil producer.
With the price of oil falling as a result of large production gains in US oil production. The price of oil is may fall below $40 per barrel according to an article in Barron’s The Case for $35 a barrel Oil suggesting further oil price declines are possible.
Latest data from the Energy Information Administration (EIA), EIA indicate global oil demand has slowed in 2013 with global oil consumption at 0.7% is half the 1.4% annual ten-year average growth. China oil demand declined by 1.1% while the US increased by 2.2% in 2013.
The data from Baker Hughes indicates that horizontal and directional drilling now accounts for over 80% of the drilling activity from 10% in the 1990’s.
The result of better performing and higher yielding oil wells is stronger production. US field oil production is up 36% in the last four years. The number of drilling rigs in the US has increased 14% from 2010 to 2013. Extraction technologies coupled with imaging technology to better source hydrocarbon deposits have all played a role in disrupting the global oil industry.
The US now leads Saudi Arabia in oil production. The following charts illustrates the oil production for the US and Saudi Arabia from 2005 through August 2014. The US is now producing more oil then Saudi Arabia and Russia.
The good news is that consumers benefit in the short run. If oil prices fall below the production cost of drilling for oil, oil production could fall, thereby, leading to perhaps higher oil prices.
The bottom line is technology and innovations have dramatically altered the landscape in the global oil industry. As technology and innovation impact the economics of oil the realization of Peak Oil may extend much further into the future and could even limit gains in renewable energy while lower oil prices continue.