Lec.

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Petroleum Economy
Introduction

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 Economy : The system of trade industry by which the wealth of a country

is made & used .

 Engineering Economics : Application of engineering or mathematical

analysis & synthesis to making decision in economics .

 Economics is a subject of interest to the engineers, as they are to deal

with the economic problems related to increasing the production

reducing the efforts, increasing the wealth, improving the living

standard, reduction in cost of the production etc.

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Economics as applied to industrial undertakings has two
main divisions.
a) Micro Economics
b) Macro Economics
Micro economics can be defined as, ‘the branch of economics where the unit
of study is a firm or an individual”. It is the main concept and a numerical
tool for economics concerning with industries. The micro-economics deals
with smaller units of the economy like behaviour of individual customer,
plant or industrial undertaking.
Macro-economics deal with whole, and studies the growth of national income
and economical environment as a whole. It plays an important role in
forecasting and other factors related to marketing.
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 The Petroleum Economy: A group of economic activities related to the
exploitation of wealth Oil, such as exploration, production, distribution and
consumption.

Stages of oil economic activity

A - The stage of research and exploration (the stage of exploration): the element
of adventure is clearly evident in this stage, as We spend a lot of capital and we
may or may not get oil
B - The stage of extraction (production:) which includes the process of
extracting oil from the ground, separating and purifying gas from it
From impurities such as sand, water and sulfur to make it suitable for refining or
export
 

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C - The transportation phase: It includes the delivery of the oil commodity from the

production areas to the places of refining and export

D - Refining stage: converting oil into a directly usable material or useful in other

manufacturing stages .

G - Petrochemical manufacturing stage: converting petroleum products into various

petrochemical products of importanceindustrial

H - Marketing stage: This stage includes the delivery of the oil commodity to the

market for the purpose of distributing it as possibleIts consumption is the link

between the producer and the consumer .

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b- Economics of the oil production process

This process is characterized by:

1. The use of different units in the oil industry with different technologies,

some of which are old and some are modern, and that the use of one of them.

These technologies affect the economics of the oil project

2. This equipment has great costs and its technical variance affects its

productivity and this affects the economics of the project

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3. The time period for the completion of the oil project is long (107) years

since the investment decision was taken until production, and hereWe need a

large investment agreement without obtaining a financial return during the

project completion period

4. Oil projects are large in size and production capacity, and their economic

effects differ compared to the projectsthe little one

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C- Economic characteristics of the oil industry

1.Oil is found in specific geographical areas, which may be land or water, at

small or large depths

2. The ratio between the fixed capital (equipment and pipes) over the variable

capital (workers’ wages and energy consumed)It is a general fixed rate (70%-

80%)

3. The rise in technological progress has a significant impact on increasing

production and thus has a clear economic impact

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4. The elasticity of the supply and demand market affects the price of oil, as the

price can be increased without changing demand

5. The oil industry requires a monopolistic concentration of one party and this

party’s loyalty to private ownership, such as major monopolistic companies

6. The oil economy includes the element of adventure, and this affects the oil

economic activity - oil is a depleting resource for thatThe oil industry has a

specific life, so a full study must be conducted linking reserves, production

and consumption

M - Economic aspects for each stage of the production process

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