Efforts by the Organization of Petroleum Exporting Countries to limit output in support of prices have been going on for several years in some shape or form. The group has had its successes and its failures, its supporters and its detractors.
Its attention is now focused on securing the support of Norway and Russia to limit their exports, but are we coming to a point where oil output is no longer controlled by political considerations but by the progress of technology?
Oil was first discovered off Norway in the late 1960s, and production did not start until 1971, when the "oil weapon" was first being added to the political armory of some countries.
Since then Norway has continuously expanded its production capacity and will soon become an exporter of LNG. Its internal oil consumption is limited, so it has become the third biggest exporter of crude oil in the world.
About 50% of the increased non-OPEC oil supply during the 1990s came from the UK and Norwegian parts of the North Sea. This was due, to a large extent, to improved oil recovery rates spurred by the price maneuvering of OPEC. High prices allow companies to indulge in experimentation with new techniques; low prices force technological changes through necessity. A number of factors are involved, but technology is the main contributing factor behind the improvements in productivity of the major fields, especially in the areas of drilling and reservoir characterization.
Prices or progress
Small gas accumulations in the southern sector of the UK North Sea are being developed by Royal Dutch/Shell Group through the use of underbalanced drilling (UBD) techniques,which make these small fields viable. These fields were considered uneconomic when discovered in the 1960s.
Now Shell is implementing this drilling technology, which adds value to its oil and gas fields by improving production rates and increasing ultimate recovery. Studies show that implementing UBD increases the recovery of hydrocarbons from fields by eliminating reservoir formation impairment. Shell has recently opened an office in Dubai to promote the use of this technology in the Middle East.
As well as improving production rates and increasing ultimate recovery by minimizing formation damage, UBD can also improve drilling performance. In all, it represents a significant value-adding technology, but the benefits of this technology are still to be fully realized, especially with large onshore reservoirs.
A senior member of Shell Exploration's team said, "Just imagine the value of increasing the ultimate recovery of all of our fields by just 1%-and we are aiming for much more."
At a time when OPEC is seeing a world output cut of just 0.4%, the inevitability of technology canceling political moves means that OPEC will eventually rethink its strategy. The process may already have started.