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TechnicalLeaders

The purpose of this article is to address

three common myths/misperceptions

the general public has of the petroleum

industry. Two oil and gas industry

technical experts give their views

regarding these common myths/

misperceptions and the factors associated

with them.

Myth #1: Theres plenty of oil and gas

available, but the oil and gas industry

is not making an effort to produce

enough for world consumption or the

industry fails to supply enough to

the market.

Questions:If oil and gas resources

are so abundant, why are pr ices so

high? What is keeping more supply from

being available?

AE: Statistics show that our industry

has produced significant amounts of oil

since the start of the modern oil industry

and there are stil l more reserves to

be produced. On the one hand, our

industry has been mostly successful in

replacing produced reserves over the

last many years. On the other hand, the

cost of producing those reserves and

problems associated with delivering

petroleum products to markets

are increasing.

The petroleum industry is

characterized by two important,

somewhat unique features: high risk and

uncertainty, and significant investment.

Many people argue that the easy oil

has long gone and we are left with

more difficult-to-produce oil and gas.

Through nurturing our people, using

advanced processes, and expanding

our technology port folio, we have

been able to produce commercially

from the Arctic, shale gas and shale

oil, deep water and ultradeep water,

heavy oil and tight oil, and so on. The

production of the more difficult oil and

gas requires the use of more expensive

methods and technologies, yet oil and

gas production is still cheaper than most

alternative energies and even probably

safer and more environmentally friendly

than some.

The oil industry is a technologically

advanced industry that develops and

employs high technology and borrows

technologies from other industries as

well. Although many factors impact

oil prices and can drive them higher,

the cost of finding, developing, and

producing reserves is proportional

to the complexity of producing those

reserves. Many of our projects take

significant time and assets to drive

oil and gas and their products to our

markets. Therefore, the combination

of costs, need for technology, political

stability in certain areas, and time

required in developing reserves

to market affects both the supply of

petroleum and oil prices.

GT:The current oil price is a result

of two main drivers. One is the

demand for oil as the fuel of choice for

transportation. While the future may

bring other modes of transportation

that do not rely on oil, for now, growth

of the world economy means increasing

demand for oil.

The second driver is the shift in

who owns the oil. Over the last 30 years

the majority of the worlds oil reserves

have moved from corporate to national

ownership. National oil companies

(NOCs) now hold more than 75% of

the worlds reserves. State-owned

companies have more objectives than

simply making a profit. They are often

an agent of government policy and

make decisions to maintain h igher

prices by li miting production.

In fact, over the last 30 years as

ownership and production have shifted

from publically owned companies to

NOCs, the price of oil has risen from

USD 20/bbl (in 2006 dollars) to as high

as more than USD 100/bbl. We can

better see that impact by comparing

oil prices to natural gas prices. Natural

Oil and Gas Professionals Perspectives

on Common Public Perceptions of

the IndustryAhmed El-Banbi,Cairo University;Geoffrey Thyne,Science Based Solutions

Ahmed El-Banbiis a professor of petroleum engineering atCairo University. With 21 years diversified international

experience in reservoir and petroleum engineering, El-

Banbi spent 12 years with Schlumberger where he held a

variety of technical and manageria l positions in five

countries. He has considerable experience in managing

multidisciplinary teams and performing integrated reservoir

studies. Previously, he held shorter assignments with a major

oil company and a consulting company, in addit ion to academic research and

teaching. El-Banbi has authored or coauthored more than 40 techn ical papers and

two book chapters. He has served on numerous SPE committees and as a technical

reviewer for SPE Reservoir Engineering & Evaluationjournal.

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2Vol. 9 // No. 2 // 2013

gas prices are, and continue to be,

very low because of the large supplies

and rapidly growing production

from unconventional resources. Is it

coincidence that those new reserves

are not controlled by national

oil companies?

We have large supplies of oil and

gas available, but recovering these

supplies is dependent on several

factors. While the price, and thus

profit, may be attractive to the industry,

the limitations imposed by NOCs as

representatives of their governments

policies ca n be prohibit ive.

We are also encountering limitations

imposed by current technology.

Supplies of easily extracted oil and

gas are declin ing. We are facing

ever-growing technical challenges

to continue production of leaner

resources. For instance, conventional

resources are fairly energy-dense.

We find ourselves having to develop

less energy-rich resources such as

shale gas. Unconventional resources

require technological innovations,

more intensive drilling densities, and

additional stimulation techniques such

as hydraulic fractur ing to produce.

Myth #2:Oil is very easy to producesince it exists in a pool underground

and you only have to drill a well

and the oil will keep gushing out of

the ground.

Questions:Why should oil and gas

companies enjoy subsidies when they are

so profitable? What factors impact oil and

gas prices?

AE: Oil exists in pore spaces and

usually in deep reservoirs below the

surface of the Earth. In many cases,

it requires a significant expense to

dril l wells and reach the petroleum

reservoirs. Also, a fter some depletion

of the reservoir, we usually need to

install a rtificial-lift equipment ( pumps

or gas lift) to help lift the oil to the

surface. We will also need to bui ld

surface facilities to treat and process

the oil and then transport it to refineries

and petrochemical plants for further

processing into products we use in

everyday life. Al l of these processes

require significant knowledge of the

business and significant investment.

Some governments encourage oil

companies to use advanced technology

and develop more technologies to

produce higher-cost oil (more difficult

oil) and therefore grant some subsidies

for specific projects.

There are many factors that affect oil

and gas prices. These include the usual

supplydemand rules that govern most

commodities. However, because oil and

gas are so tied to our lives, and because

there is always fear of disruption of oil or

gas (or their products) supply at certain

times, prices may be af fected by other

factors. These factors include political

stability, storage capacity and stock

amounts, Organization of the Petroleum

Exporting Countries and high-

production countries interference in the

market, accidents, weather conditions,

and public perception.

GT:The actual profit margin of oil and

gas companies is fairly average (4%

8%) compared to many other industries.

However, since the energy industry is

the largest business on the planet, the

absolute profit value seems huge. That

said, the energy industry does enjoy

a number of tax incentives that may or

may not be necessary. This is a political

question since there are national

security issues involved in maintaining

a secure energy supply.

First, it is important to recognize

that the oil and gas market is a world

market. Few countries are self-sufficient

when it comes to energy. And second,

while most of us think of oil and gas as

commodities, they are much more.

The reality is petroleum is a critical

source of energy in the modern world,

and as such is a tool of international

power. In the free-market view,

prices are a function of supply and

demand; however, that ideal has

been substantially changed by the

rise of national oil companies. As

producers, they have good reason to

maximize production, which increases

supplies and lowers prices; however,

as instruments of their governments

policies there are other considerations.

World oil and gas supplies have

become instruments of policy as much

as commodities.

Myth #3:Hydraulic fracturing isharmful to the environment.

Geoffrey Thyne is a registered professional geologist

specializing in applications of geochemistry to Earth

systems, working since 2012 as a private consulta nt for

Science Based Solutions in Laramie, Wyoming. He has

served on the Scientific Advisory Board for the US

Environmental Protection Agencys current hydraulic

fracturing study. Early on, Thyne worked as a research

geochemist at the Arco Oil and Gas research facility in

Plano, Texas, turning to academia in the 1990s as an assistant professor at

California State UniversityBakersfield in the department of physics and geology.

He then joined the department of geology and geological engineering at the

Colorado School of Mines, while also serv ing as project manager for the Colorado

Energy Research Institute. He joined the Enhanced Oil Recovery Institute at the

University of Wyoming in 2006 as a senior research scientist. The author or

coauthor of more than 50 peer-reviewed scientific papers, Thyne was recognized

by the American Association of Petroleum Geologists with the A.I. Levorsen

Memorial Award in 2006. He holds a BA in chemistry and zoology from University

of South Florida, an MS in oceanography from Texas A&M University, and a PhD in

geology from the University of Wyoming.

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Questions:What are oil and gas

companies doing to reduce harmful

environmental impacts to air, water, land,

and people? Why arent they doing more

and faster? Do oil and gas have a role in a

low-carbon future?

AE: Hydraulic fracturing is a technology

that uses hydraulic power to pump

fluid, chemicals, and proppant (sand

particles or other material) to fracture

the rock below the Earths surface

(reservoir layers) to create conduits of

high permeability a nd allow more oil

and gas to flow to the surface. Hydraulic

fracturing technology is credited

with adding significant reserves to

some hydrocarbon reservoirs and

to changing many nonprofitable

oil and gas extraction projects to

profitable ones.

When eng ineered properly,

hydraulic fractur ing operations have

very low impact on the env ironment. In

most locations, oil companies exercise

high standards of safety, adhere to

environmental constraints, and employ

good industria l practices that reduce

the impact on the environment to a

minimal footprint.

GT:Over the decades of petroleum

extraction, the industry as a whole

has done an enormous amount to

balance the production of resources

with minimal environmental

impact. There is, and always will

be, a dynamic tension between

corporate profits and public good;

however, mature corporations have

implemented policies and practices

that recognize this balance. This is and

will remain a constantly moving target.Instilling and maintaining corporate

philosophies that encourage and reward

practices that reduce environmenta l

impact is key.

However, on the hydraulic

fracturing issue, oil and gas

companies have not been proactive

enough in acknowledging and

minimizing environmental impact. In

part this is the outcome of the rapid

deployment of an evolving technology.

Another factor is that many

companies involved in developing

unconventional resources are

relatively new to the business. In my

experience, the larger, well-established

corporations with long histories in

conventional oil and gas have over

the decades developed policies that

balance business and environmental

concerns. These companies have

come to realize that minimizing

environmental impact is simply good

business. In contrast, many companies

involved in developing unconventional

resources are still climbing the

learning curve.

Many companies view the problem

as political rather than technical. Their

public relations ef forts are spent on

propagati ng a story l ine whose premise

is that development activities, especially

hydraulic fracturing, are well regulated

and have never caused environmental

damage. Many in the industry accept

these statements without question.

Since this position contradicts the

experience of many citizens, it creates

a credibility issue with the public. The

industrys response to questions is too

often further denial, efforts to influence

policy-makers, and suppression of

opposing points of view. This has

created an antagonistic environment

where sensible solutions and policies

are ignored in favor of further polarizing

stand-offs and conflict.

The fact is most of the problems are

engineering and technical in nature,

problems the oi l and gas industry can

solve. Realistic and practical solutions

such as green fluids, public access

to well records and fracturing-fluid

composition, cooperative engagement

with the public, and forward-looking

business practices should be our focus.

Using oil in tra nsportation more

efficiently and the growth of natural

gas in electr icity generation have

already reduced US carbon emissions

substantial ly. In fact, the US is well on

track to reach the Kyoto targets for its

carbon emissions.

Injection of CO2for enhanced

oil recovery is a carbon-neutral

practice that expands our domestic

oil reserves while contributing to

carbon management.

However, the larger question is:

What would we substitute for oil and

gas? Petroleum (oil and gas) supplies

about 60% of world energy needs.

Energy is essential to our lifestyle and

our economies. Growth in population,

food production, life expectancies, and

quality of life are all directly tied to

energy supply. Changing to low-carbon

energy-generation technologies and

the accompanying infrastructure is a

multigenerational endeavor.

While renewable energ y sources

will continue to grow, we have to

confront the fundamental issues of scale

and reliability. For instance, consider

energy payback ratios (EPR), or how

much energy is required to extract

a resource compared to how much

energy the resource creates. This

is a life-cycle analysisthe well-to-

wheels analysis.

So how much energy does it take to

extract a barrel of oil, pound of coal, or

megawatt of electricity from a windmill?

The EPR of coal is between 2 and 5,

nuclear is 14 to 16, solar panels have a

factor of 3 to 6, windmil ls have a return

between 18 to 34 times, while the EPR

for the best Middle Eastern wells is

100. Coupled with the fact that we

currently cannot effectively store the

power generated by wi nd and solar,

we have no real substitute for oil and

gas in the near term. Someday there

will be a game-changing technological

substitute for petroleum, but until then

petroleum remains a key player in the

energy business. TWA

References

BP Statistical Review of World Energy

2012, June 2012 www.bp.com/

statisticalreview.

El-Banbi, A hmed H. 2010.

Technology and Innovation: Do

We Do Enough in Our I ndustry?

Paper SPE 128485 presented

at the North Africa Technical

Conference and Exhibition,

Cairo, Egypt, 1417 February.