Page 30 - Introduction to Petroleum Engineering
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14 INTRODUCTION
1.4.1 The Price of Oil
The price of oil is influenced by geopolitical events. The Arab–Israeli war triggered
the first oil crisis in 1973. An oil crisis is an increase in oil price that causes a
significant reduction in the productivity of a nation. The effects of the Arab oil
embargo were felt immediately. From the beginning of 1973 to the beginning of
1974, the price of a barrel of oil more than doubled. Americans were forced to ration
gasoline, with customers lining up at gas stations and accusations of price gouging.
The Arab oil embargo prompted nations around the world to begin seriously consid-
ering a shift away from a carbon‐based economy. Despite these concerns and the
occurrence of subsequent oil crises, the world still obtains over 80% of its energy
from fossil fuels.
Historically, the price of oil has peaked when geopolitical events threaten or dis-
rupt the supply of oil. Alarmists have made dire predictions in the media that the
price of oil will increase with virtually no limit since the first oil crisis in 1973. These
predictions neglect market forces that constrain the price of oil and other fossil fuels.
Example 1.6 Oil Security
A. If $100 billion is spent on the military in a year to protect the delivery
of 20 million barrels of oil per day to the global market, how much does
the military budget add to the cost of a barrel of oil?
Answer
Totaloil peryear 20 million bbl/day 365 days/yr 73 billion bbbl/yr
.
$100 billion/yr
Costof military/bbl $.70 /bbbl
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. 73 billion bbl/yr
b. How much is this cost per gallon?
Answer
0
Cost/gal $.70 /bbl 1 bbl/42 gal $.33 /gal
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1.4.2 How Does Oil Price Affect Oil Recovery?
Many experts believe we are running out of oil because it is becoming increasingly
difficult to discover new reservoirs that contain large volumes of conventional oil and
gas. Much of the exploration effort is focusing on less hospitable climates, such as
arctic conditions in Siberia and deepwater offshore regions near West Africa. Yet we
already know where large volumes of oil remain: in the reservoirs that have already
been discovered and developed. Current development techniques have recovered
approximately one third of the oil in known fields. That means roughly two thirds
remains in the ground where it was originally found.
