Chapter

Exploration, Recovery, and Transportation

Recent variations in the price of petroleum and of petroleum products have once again raised
controversy and public displeasure. The increasing and decreasing trends in oil prices will
continue and consumers must face the problem of continued oil price variations and the
inevitable economic problems they cause. Price increases cause economic hardship to the
consumer, while price decreases may seem to be a form of relief to the consumer, but there is
another often unseen cost: the elimination of jobs.
With the estimated exhaustion of known oil reserves in about 30 to 50 years, there may be
fluctuations in prices and periods of price declines, but the overall upward trend is unlikely to
be reversed. There is the possibility that higher oil prices make it economical to drill for more
oil at a higher cost and thereby increase supplies. However, it is not always recognized by
economists and technical persons alike that finding and producing new oil may require a gap of
several years, during which time field development is proceeding in a logical and non-
wasteful manner.
It must be recognized that it is not appropriate to deal with the issue of petroleum pricing as
an isolated entity. Petroleum pricing is a summation of many variables and must be considered
in the light of total activities of the petroleum industry. This includes the processes of
exploration, extraction, and transportation (as well as refining capacity, refining processes, and
petroleum products such as gasoline, which are covered elsewhere; Chapter 6). Each can have
an effect on crude oil prices. For example, higher prices can result in increased exploration
and production both in the OPEC (oil exporting) nations and in the non-OPEC (oil importing)
nations.
On the supply side, the main effects on the crude oil market are the OPEC nations, which
currently provide approximately 40% of the world supply and hold approximately 70% of the
Copyright © 2011. John Wiley & Sons, Incorporated. All rights reserved.

proven reserves. OPEC, as the marginal supplier, behaves as a cartel by aiming to maintain
excess extraction capacity in order to influence crude oil prices. In recent years, the policy has
been to balance the market while allowing for an appropriate level of crude oil inventories in
non-OPEC nations that,have relatively limited reserves and spare capacity.
Even before the economics of crude oil pricing is decided, there are several aspects of
petroleum technology that need to be taken into account and all make a contribution to the price
of oil. In fact, crude oil prices behave much as any other commodity with wide price swings
but which may, or may not, be due to shortage or oversupply. Indeed, the crude oil price cycle
may extend over several months or even over several years responding to changes in demand
as well as supply.

Speight, James G., et al. An Introduction to Petroleum Technology, Economics, and Politics, John Wiley & Sons, Incorporated, 2011. ProQuest Ebook Central,
http://ebookcentral.proquest.com/lib/UNICAF/detail.action?docID=818531.
Created from UNICAF on 2023-08-07 23:04:32.