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Technical Leaders
The purpose of this article is to address
three common myths/misperceptions
the general public has of the petroleum
industry. Two oil and gas industry
technical experts give their views
regarding these common myths/
misperceptions and the factors associated
with them.
Myth #1: Theres plenty of oil and gas
available, but the oil and gas industry
is not making an effort to produce
enough for world consumption or the
industry fails to supply enough to
themarket.
Questions: If oil and gas resources
are so abundant, why are prices so
high? What is keeping more supply from
beingavailable?
AE: Statistics show that our industry
has produced signifcant amounts of oil
since the start of the modern oil industry
and there are still more reserves to
be produced. On the one hand, our
industry has been mostly successful in
replacing produced reserves over the
last many years. On the other hand, the
cost of producing those reserves and
problems associated with delivering
petroleum products to markets
areincreasing.
The petroleum industry is
characterized by two important,
somewhat unique features: high risk and
uncertainty, and signifcant investment.
Many people argue that the easy oil
has long gone and we are left with
more diffcult-to-produce oil and gas.
Through nurturing our people, using
advanced processes, and expanding
our technology portfolio, we have
been able to produce commercially
from the Arctic, shale gas and shale
oil, deep water and ultradeep water,
heavy oil and tight oil, and so on. The
production of the more diffcult oil and
gas requires the use of more expensive
methods and technologies, yet oil and
gas production is still cheaper than most
alternative energies and even probably
safer and more environmentally friendly
thansome.
The oil industry is a technologically
advanced industry that develops and
employs high technology and borrows
technologies from other industries as
well. Although many factors impact
oil prices and can drive them higher,
the cost of fnding, developing, and
producing reserves is proportional
to the complexity of producing those
reserves. Many of our projects take
signifcant time and assets to drive
oil and gas and their products to our
markets. Therefore, the combination
of costs, need for technology, political
stability in certain areas, and time
required in developing reserves
to market affects both the supply of
petroleum and oil prices.
GT: The current oil price is a result
of two main drivers. One is the
demand for oil as the fuel of choice for
transportation. While the future may
bring other modes of transportation
that do not rely on oil, for now, growth
of the world economy means increasing
demand for oil.
The second driver is the shift in
who owns the oil. Over the last 30 years
the majority of the worlds oil reserves
have moved from corporate to national
ownership. National oil companies
(NOCs) now hold more than 75% of
the worlds reserves. State-owned
companies have more objectives than
simply making a proft. They are often
an agent of government policy and
make decisions to maintain higher
prices by limitingproduction.
In fact, over the last 30 years as
ownership and production have shifted
from publically owned companies to
NOCs, the price of oil has risen from
USD 20/bbl (in 2006 dollars) to as high
as more than USD100/bbl. We can
better see that impact by comparing
oil prices to natural gas prices. Natural
Oil and Gas Professionals Perspectives
on Common Public Perceptions of
theIndustry
Ahmed El-Banbi, Cairo University; Geoffrey Thyne, Science Based Solutions
Ahmed El-Banbi is a professor of petroleum engineering at
Cairo University. With 21 years diversifed international
experience in reservoir and petroleum engineering, El-
Banbi spent 12 years with Schlumberger where he held a
variety of technical and managerial positions in fve
countries. He has considerable experience in managing
multidisciplinary teams and performing integrated reservoir
studies. Previously, he held shorter assignments with a major
oil company and a consulting company, in addition to academic research and
teaching. El-Banbi has authored or coauthored more than 40 technical papers and
two book chapters. He has served on numerous SPE committees and as a technical
reviewer for SPE Reservoir Engineering & Evaluation journal.
23 Vol. 9 // No. 2 // 2013
gas prices are, and continue to be,
very low because of the large supplies
and rapidly growing production
from unconventional resources. Is it
coincidence that those new reserves
are not controlled by national
oilcompanies?
We have large supplies of oil and
gas available, but recovering these
supplies is dependent on several
factors. While the price, and thus
proft, may be attractive to the industry,
the limitations imposed by NOCs as
representatives of their governments
policies can beprohibitive.
We are also encountering limitations
imposed by current technology.
Supplies of easily extracted oil and
gas are declining. We are facing
ever-growing technical challenges
to continue production of leaner
resources. For instance, conventional
resources are fairly energy-dense.
We fnd ourselves having to develop
less energy-rich resources such as
shale gas. Unconventional resources
require technological innovations,
more intensive drilling densities, and
additional stimulation techniques such
as hydraulic fracturing to produce.
Myth #2: Oil is very easy to produce
since it exists in a pool underground
and you only have to drill a well
and the oil will keep gushing out of
theground.
Questions: Why should oil and gas
companies enjoy subsidies when they are
so proftable? What factors impact oil and
gas prices?
AE: Oil exists in pore spaces and
usually in deep reservoirs below the
surface of the Earth. In many cases,
it requires a signifcant expense to
drill wells and reach the petroleum
reservoirs. Also, after some depletion
of the reservoir, we usually need to
install artifcial-lift equipment (pumps
or gas lift) to help lift the oil to the
surface. We will also need to build
surface facilities to treat and process
the oil and then transport it to refneries
and petrochemical plants for further
processing into products we use in
everyday life. All of these processes
require signifcant knowledge of the
business and signifcant investment.
Some governments encourage oil
companies to use advanced technology
and develop more technologies to
produce higher-cost oil (more diffcult
oil) and therefore grant some subsidies
for specifc projects.
There are many factors that affect oil
and gas prices. These include the usual
supplydemand rules that govern most
commodities. However, because oil and
gas are so tied to our lives, and because
there is always fear of disruption of oil or
gas (or their products) supply at certain
times, prices may be affected by other
factors. These factors include political
stability, storage capacity and stock
amounts, Organization of the Petroleum
Exporting Countries and high-
production countries interference in the
market, accidents, weather conditions,
and public perception.
GT: The actual proft margin of oil and
gas companies is fairly average (4%
8%) compared to many other industries.
However, since the energy industry is
the largest business on the planet, the
absolute proft value seems huge. That
said, the energy industry does enjoy
a number of tax incentives that may or
may not be necessary. This is a political
question since there are national
security issues involved in maintaining
a secure energy supply.
First, it is important to recognize
that the oil and gas market is a world
market. Few countries are self-suffcient
when it comes to energy. And second,
while most of us think of oil and gas as
commodities, they are much more.
The reality is petroleum is a critical
source of energy in the modern world,
and as such is a tool of international
power. In the free-market view,
prices are a function of supply and
demand; however, that ideal has
been substantially changed by the
rise of national oil companies. As
producers, they have good reason to
maximize production, which increases
supplies and lowers prices; however,
as instruments of their governments
policies there are other considerations.
World oil and gas supplies have
become instruments of policy as much
ascommodities.
Myth #3: Hydraulic fracturing is
harmful to the environment.
Geoffrey Thyne is a registered professional geologist
specializing in applications of geochemistry to Earth
systems, working since 2012 as a private consultant for
Science Based Solutions in Laramie, Wyoming. He has
served on the Scientifc Advisory Board for the US
Environmental Protection Agencys current hydraulic
fracturing study. Early on, Thyne worked as a research
geochemist at the Arco Oil and Gas research facility in
Plano, Texas, turning to academia in the 1990s as an assistant professor at
California State UniversityBakersfeld in the department of physics and geology.
He then joined the department of geology and geological engineering at the
Colorado School of Mines, while also serving as project manager for the Colorado
Energy Research Institute. He joined the Enhanced Oil Recovery Institute at the
University of Wyoming in 2006 as a senior research scientist. The author or
coauthor of more than 50 peer-reviewed scientifc papers, Thyne was recognized
by the American Association of Petroleum Geologists with the A.I. Levorsen
Memorial Award in 2006. He holds a BA in chemistry and zoology from University
of South Florida, an MS in oceanography from Texas A&M University, and a PhD in
geology from the University of Wyoming.
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Technical Leaders
Questions: What are oil and gas
companies doing to reduce harmful
environmental impacts to air, water, land,
and people? Why arent they doing more
and faster? Do oil and gas have a role in a
low-carbon future?
AE: Hydraulic fracturing is a technology
that uses hydraulic power to pump
fuid, chemicals, and proppant (sand
particles or other material) to fracture
the rock below the Earths surface
(reservoir layers) to create conduits of
high permeability and allow more oil
and gas to fow to the surface. Hydraulic
fracturing technology is credited
with adding signifcant reserves to
some hydrocarbon reservoirs and
to changing many nonproftable
oil and gas extraction projects to
proftableones.
When engineered properly,
hydraulic fracturing operations have
very low impact on the environment. In
most locations, oil companies exercise
high standards of safety, adhere to
environmental constraints, and employ
good industrial practices that reduce
the impact on the environment to a
minimal footprint.
GT: Over the decades of petroleum
extraction, the industry as a whole
has done an enormous amount to
balance the production of resources
with minimal environmental
impact. There is, and always will
be, a dynamictension between
corporate profts and public good;
however, mature corporations have
implementedpolicies and practices
that recognize this balance. This is and
will remain a constantly moving target.
Instilling and maintaining corporate
philosophies thatencourage and reward
practicesthat reduce environmental
impact is key.
However, on the hydraulic
fracturingissue, oil and gas
companieshave not been proactive
enough in acknowledging and
minimizing environmental impact. In
part this is the outcome of the rapid
deployment of an evolving technology.
Another factor is that many
companies involved in developing
unconventional resources are
relatively new to the business. In my
experience, the larger, well-established
corporations with long histories in
conventional oil and gas have over
the decades developed policies that
balance business and environmental
concerns. These companies have
come to realize that minimizing
environmentalimpact is simply good
business. In contrast, many companies
involved in developing unconventional
resources are still climbing the
learningcurve.
Many companies view the problem
as political rather than technical. Their
public relations efforts are spent on
propagating a story line whose premise
is that development activities, especially
hydraulic fracturing, are well regulated
and have never caused environmental
damage. Many in the industry accept
these statements without question.
Since this position contradicts the
experience of many citizens, it creates
a credibility issue with the public. The
industrys response to questions is too
often further denial, efforts to infuence
policy-makers, and suppression of
opposing points of view. This has
created an antagonistic environment
where sensible solutions and policies
are ignored in favor of further polarizing
stand-offs and confict.
The fact is most of the problems are
engineering and technical in nature,
problems the oil and gas industry can
solve. Realistic and practical solutions
such as green fuids, public access
to well records and fracturing-fuid
composition, cooperative engagement
with the public, and forward-looking
business practices should be our focus.
Using oil in transportation more
effciently and the growth of natural
gas in electricity generation have
already reduced US carbon emissions
substantially. In fact, the US is well on
track to reach the Kyoto targets for its
carbon emissions.
Injection of CO
2
for enhanced
oil recovery is a carbon-neutral
practice that expands our domestic
oil reserves while contributing to
carbonmanagement.
However, the larger question is:
What would we substitute for oil and
gas? Petroleum (oil and gas) supplies
about 60% of world energy needs.
Energy is essential to our lifestyle and
our economies. Growth in population,
food production, life expectancies, and
quality of life are all directly tied to
energy supply. Changing to low-carbon
energy-generation technologies and
the accompanying infrastructure is a
multigenerational endeavor.
While renewable energy sources
will continue to grow, we have to
confront the fundamental issues of scale
and reliability. For instance, consider
energy payback ratios (EPR), or how
much energy is required to extract
a resource compared to how much
energy the resource creates. This
is a life-cycle analysisthe well-to-
wheelsanalysis.
So how much energy does it take to
extract a barrel of oil, pound of coal, or
megawatt of electricity from a windmill?
The EPR of coal is between 2and 5,
nuclear is 14 to 16, solar panelshave a
factor of 3 to 6, windmills have a return
between 18 to 34 times, while the EPR
for the best Middle Eastern wells is
100. Coupled with the fact that we
currently cannot effectively store the
power generated by wind and solar,
we have no real substitute for oil and
gas in the near term. Someday there
will be a game-changing technological
substitute for petroleum, but until then
petroleum remains a key player in the
energybusiness. TWA
References
BP Statistical Review of World Energy
2012, June 2012 www.bp.com/
statisticalreview.
El-Banbi, Ahmed H. 2010.
Technology and Innovation: Do
We Do Enough in Our Industry?
Paper SPE128485 presented
at the NorthAfrica Technical
ConferenceandExhibition,
Cairo,Egypt, 1417February.