Energy Strategy, Technology, and Current Issues in the Oil Industry
Energy Overview / Current Issues in Energy

Susan Smith Nash, Ph.D.

  Skyrocketing costs in energy technology.

The costs of operations are escalating a pace that outstrips commodities prices. Many oil and gas ventures rely on new technologies to extract previously unrecoverable reserves, which results in difficulties of determining ultimate costs.
Onshore operations include unconventional resources (shale, coalbed methane, shale oil) which require the use of new technologies in order to recover the hydrocarbons. Traditional methods are not adequate for producing the resources, and so any company that is involved in the new plays is compelled, by necessity, to use high-cost methods.

Using horizontal drilling and new completion techniques to in-field drill or re-enter old wells in mature fields and to recover the hydrocarbons that could not be produced before has presented new opportunities, but unfortunately, the technologies are expensive.

Offshore, the costs of building platforms and infrastructure to drill for deep, ultra-deep, and subsalt reservoirs are escalating. Further, new technologies used for acquiring seismic data (wide azimuth, etc.) that can be used for higher resolution images of the reservoirs continues to escalate.

Examples of places where costs often outstrip projects include:
    Coal-bed methane: water disposal costs, low volumes, and environmental concerns (emissions, stray gas, etc.) can drive up costs, while natural gas prices have dropped since 2008, and they it is projected that they will continue to stay low.
    Hydraulic fracturing: water costs, proppants, frac fluid, and time can exceed estimates, sometimes by 50 100%
    Drilling costs:  often a matter of supply and demand; drilling costs are very elastic upward
    Water costs:  the cost of obtaining water for drilling, as well as dealing with (processing, reusing, or disposing of) flowback, produced water, and other areas.
    Infrastructure:  gas gathering, pipelines, processing, and conditioning can be much more expensive than anticipated, particularly when chemical costs (corrosion control, etc.) are not well estimated before producing.
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Guiding Questions:
Where are costs likely to escalate? What are some of the services most likely to exhibit price volatility?

Select two or three of new technologies and conduct research online to find information about what they are doing to help stimulate production, and how / where they are costly:

    Wide azimuth seismic data acquisition
    Imaging and data processing of 3D seismic
    Hydraulic fracturing
    Proppants used in hydraulic fracturing
    Microseismic surveys during hydraulic fracturing
    Water sourcing
    Produced water management
    Gas gathering systems
    Pipelines (oil and gas)
    Regulatory compliance
What are the consequences of rising costs of services?