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I'm genuinely curious about this, because it sounds like you have some first hand experience. My understanding is that this is not entirely true. Capital inten

I'm genuinely curious about this, because it sounds like you have some first hand experience. My understanding is that this is not entirely true. Capital intensive projects like Refineries, Storage and Shipment are inelastic, but actual drilling is relatively elastic. To the point where they leave wells sitting, pre-drilled ready to turn on in the event that they become profitable at some point. I'm assuming there is also excess capacity available in the inelastic parts of the system given that a lot of these infrastructure was built during times when the US was a larger extractor of oil.

zubiaur 5y ago
Like many things, it depends. I think the pre-drilled thing was an artifact of relatively cheap money coupled to low oil prices. Some sort of underground contango hold. I remember this was a thing around 2015, when oil prices were below 50 dollars. The thing is, those wells were not ready to go, they needed to be completed (the process of perforating the casing to have contact with the formation) and fracked. I don’t know if we have a significant backlog of uncompleted wells anymore. Wells vary much depending on the reservoir. For the most part, easy oil has already been tapped. There are still some places with low geological risk, in the Middle East, Venezuela, and such. A driller friend of mine in the Middle East was drilling a well a month, so there is that. This is why, every time there is a disruption, one hears discussion about OPEC’s spare capacity. But even then, before the drilling actually happens, there needs to be a well design, and studies done on how better to drain a reservoir to maximize recovery. All that also takes time. And all that assumes that these companies operate on fields that are already discovered. Fields have a production curve, the area under the curve is the recovered oil. They all, at the end, decline. Doing a full field development can take decades after discovery, and discovery can take years too. From prospection, to seismic, to the drilling of wildcat and delimiting wells. Moreover, investment in exploration has declined, and more and more new discoveries are in remote places, needing great investments in infrastructure. A potential stopgap could be the adoption of fracking in places like Europe, but it is banned over there. It baffles me. The simple exercise of calculating the enthalpy of combustion of methane vs carbon (coal) makes it incredibly obvious that natural gas is a much better fuel from a carbon emitting perspective, and this is without accounting for the efficiencies of combined cycle vs steam cycle.

zubiaur 5y ago

Like many things, it depends. I think the pre-drilled thing was an artifact of relatively cheap money coupled to low oil prices. Some sort of underground contango hold. I remember this was a thing around 2015, when oil prices were below 50 dollars. The thing is, those wells were not ready to go, they needed to be completed (the process of perforating the casing to have contact with the formation) and fracked. I don’t know if we have a significant backlog of uncompleted wells anymore. Wells vary much depending on the reservoir. For the most part, easy oil has already been tapped. There are still some places with low geological risk, in the Middle East, Venezuela, and such. A driller friend of mine in the Middle East was drilling a well a month, so there is that. This is why, every time there is a disruption, one hears discussion about OPEC’s spare capacity. But even then, before the drilling actually happens, there needs to be a well design, and studies done on how better to drain a reservoir to maximize recovery. All that also takes time. And all that assumes that these companies operate on fields that are already discovered. Fields have a production curve, the area under the curve is the recovered oil. They all, at the end, decline. Doing a full field development can take decades after discovery, and discovery can take years too. From prospection, to seismic, to the drilling of wildcat and delimiting wells. Moreover, investment in exploration has declined, and more and more new discoveries are in remote places, needing great investments in infrastructure. A potential stopgap could be the adoption of fracking in places like Europe, but it is banned over there. It baffles me. The simple exercise of calculating the enthalpy of combustion of methane vs carbon (coal) makes it incredibly obvious that natural gas is a much better fuel from a carbon emitting perspective, and this is without accounting for the efficiencies of combined cycle vs steam cycle.