The Quest, Chapters 12 and 15 Overview

The Quest, Chapter 12 Overview

After reviewing the origins and early years of OPEC, we see the control and worldwide impact this new organization can bring to the oil industry. This portion adds some balance to the swing for oil control. The North Sea adds unconventional petroleum to the world market and counters the percentage control with OPEC. This also highlights the advantages of continuing to advance technology for recovering oil. The North Sea deep oil drilling has its own challenges of cold and harsh weather conditions. This offshore drilling is more expensive than drilling in the Middle East and even more than drilling in Venezuela. Yet, in response to the rise in the price of a barrel of oil, it would cover this increased cost of drilling in the North Sea.

Just as we see today with the increase of hydraulic fracking (HF). HF is more expensive than conventional drilling, but as the price per barrel goes up, so can the investment in unconventional drilling process and recovery. The challenge is to make the recovery of the oil economically profitable. There is a price threshold below which the recovery of this unconventional oil is no longer profitable. The companies can continue drilling at a loss or stop drilling until the price rebounds. There is no point in drilling oil that costs more to produce than the price for which it can be sold.

The Quest, Chapter 15 Overview

From The Prize, we saw that the replacement of coal is explained though the general use of petroleum and nuclear energy options. The Quest reading focuses more specifically on the Liquid Natural Gas (LNG) used to replace coal. Here we learn that technology to change it from a gas to a liquid and back again is key to it replacing coal.

The next challenge is the economic considerations of being able to make that transfer economically profitable. The high cost to make natural gas into a liquid, then transport it, then transfer it back adds to the overall cost of the product. The long-term view of the Natural Gas (NG) industry saw the need to lengthen the contracts to guarantee an ability to spread the costs over a longer time frame and have a long-term customer. At the beginning of these long-term contracts, there were limited sources for the NG, mainly being in Louisiana and Algeria. Once

there was an increase in the number of producers around the world, the price of transporting NG dropped.

This section jumps ahead and gives you a glimpse of yet another oil crisis in 1973. We will not go into details about it yet. Beyond that, it spurred the development of more expensive options as a response. This new abundant product, LNG, added stability to the world market by giving a balance to the resources controlled by OPEC, thus reducing their overall influence on the market. Even though LNG is a different product than petroleum, the price was indexed to the oil prices - meaning they were attached, but not the same per barrel. As the price of oil went up, the price of LNG went up the same amount. If the price of a barrel of oil dropped, so did the price of LNG. Hence, this new expensive product was added to the overall world market of petroleum.