The Characteristics and Economics of the Oil Industry

Posted on Aug 5, 2024 in Geography

The Characteristics of the Oil Industry

  1. Magnitude of Capital Investment: The oil industry requires substantial investments due to the numerous and diverse stages involved in oil production and the nature of the earth and water where oil is found.
  2. High Proportion of Fixed Capital Investment: The oil industry primarily utilizes fixed capital elements such as machinery, equipment, and construction, which account for over 80% of the capital structure.
  3. Use of Development Technology: The industry employs advanced technology to reduce production costs and increase returns.
  4. Low Elasticity of Demand and Supply in the Short Term: The elasticity of demand for oil is less than one, resulting in sharp price fluctuations for crude oil and its derivatives.

The Economics of Oil Industry Stages

1. Stage of Detection, Investigation, and Exploration

This stage aims to identify the presence, type, and quantity of oil reserves. It includes:

  • Geological Survey: Mapping oil lands and conducting surface, aerial, and geological surveys.
  • Geophysical Survey: Checking and analyzing subsurface layers and determining gravity and magnetism.
  • Geochemical Survey: Assessing the extent of oil presence.
  • Exploratory Drilling: Drilling oil wells to locate crude oil or identify oil-bearing layers.
  • Evaluative or Developmental Drilling: Drilling wells to determine the limits of the oil field, increase exploitation efficiency, and maintain natural oil flow.

2. Stage of Oil Extraction

Methods:

  1. Natural Extraction: The natural flow of crude oil from the earth due to dissolved gas, water, heat, or gravitational forces.
  2. Synthetic Extraction: Using human intervention, machinery, and equipment to increase reservoir pressure and enhance oil flow. This method is known as secondary and tertiary extraction.

Factors Affecting Oil Extraction Operations:

  • Oil Extraction Rates: Aiming to extract the maximum amount of crude oil while considering economic, technical, and political factors.
  • Well Depletion: The timeframe for exploiting oil reserves in a well or oil field, influenced by factors such as oil reserves, extraction rates, and extraction techniques.

Oil Transportation

Common means of transporting crude oil and its products include:

  1. Ground Transportation: Pipelines, railways, and large tanker trucks.
  2. River Transport: Tankers, container ships, and river floating platforms.