How Technology Affects Energy Prices

The 1980’s gave the world a lot of things; Rubik’s Cubes, Space Invaders and Flock of Seagulls, just to name a few. But, while Atari was using advances in graphical displays to create worlds beyond our wildest dreams, the Oil & Gas industry was busy using that same technology to revolutionize the Oil & Gas industry. And, the revolution was televised in oil prices.

3D – No Glasses Required

In 1982, Landmark Graphics was the first company to bring 2D and 3D seismic to the market. GeoQuest Systems and Seismic Micro-Technologies (SMT) followed in 1984 and 1985, respectively. These new technologies gave geoscientists a view into the subsurface that was previously not possible. This reduced risk and companies spotted hydrocarbon traps that had been overlooked in the past.

As word of the massive returns companies experienced while using these technologies spread, so did its adaption. New software was placed on thousands of geoscientist’s desktops all over the world. And, those geoscientists did their jobs very well. This resulted in the “1980s oil glut” when prices dropped from their 1980 peak of $35 per barrel to $10 per barrel in 1986. To put this in perspective in today’s dollars, this would be the equivalent of prices going from $99 per barrel to $21 per barrel. The victory was bittersweet for Exploration & Production (E&P) companies across the globe.

Fracking is the New 3D

We are now in the middle of a new era of changing technology. The price of natural gas has historically mirrored the price of oil, as noted by the blue and green lines below. Many industries, including power, have built plants that allow switching between oil and natural gas. This gives them flexibility to buy energy at the lowest dollar per British Thermal Unit (BTU). This gave companies an advantage because either oil or gas could be profitable at any time. In many cases, it didn’t matter what was being developed.

However, 2 years ago the price of natural gas kept going down, and the price of oil kept going up. The disruptive technology driving this trend is, of course, hydraulic fracturing of shale. In North America, this has been a boon to consumers. But, price changes haven’t manifested worldwide because it’s not easy to transport natural gas across oceans. Yet, unlike hydrocarbons, the technology is easy to export. With vast shale reserves on most continents, it is sure to move quickly to the rest of the world. One cannot understate the challenge of importing the necessary equipment and building the pipeline infrastructure, but countries that execute the most efficiently will succeed the fastest.

What’s Next?

What will be the next disruptive technology in our industry is anyone’s guess. Between the internet and the huge computing power we all have on our desktops and now in our pockets via smartphones, the possibilities are limitless. Today, we have the potential to connect data, information and people in ways that have heretofore been the subject of science fiction. The ability to look at problems with a fresh perspective has always brought about innovation. As history has proven, innovation will drive new discoveries. This will change the way we explore for oil and gas, and offer the solutions we desperately need to solve the world’s ever-growing energy demands.

Now it’s your turn. What do you think will be the next big breakthrough in Oil & Gas exploration? Leave a comment below.

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