Oil Industry’s Most Lasting Resource Is Knowledge
Without widespread notice, a change has occurred in the world oil business that will have long-term implications for U.S. job-seekers and investors, companies and universities.
The outlook has shifted to growth. The International Energy Agency, an organization of petroleum-consuming countries set up in the 1970s, recently forecast strong increases in energy demand from now until 2010, with oil usage growing 4% a year in Asia and less rapidly elsewhere.
But prices will barely increase. The energy agency predicts a world oil price of $28 a barrel in 2010, and other experts say it could be closer to $20. Either way, allowing for inflation in the intervening years, that would be no rise at all.
That means oil and gas will be plentiful, not only in the Middle East but in Russia, China, Vietnam and other areas of the world where vast oil deposits are only now being discovered.
And U.S. industry, thanks to multiple advances in technology, will lead the way in developing and producing the oil of Russia, China and elsewhere. The industry’s prospects are one reason oil stocks have been strong lately, while shares of other businesses have gyrated and declined.
But no business is simple these days. Like all other industries affected by information technology, oil is a study in contrasts.
Big companies are shedding employees; geologists have difficulty finding work. Yet the numbers of independent oil and gas companies are rising sharply again, after a horrendous decline in the 1980s.
Because of turmoil in the U.S. industry, America’s young people seem uncertain whether it offers opportunity. Geology enrollments at the University of Texas are well below levels of the early ‘80s. But they have turned up recently, thanks in part to undergraduate and graduate students from Brazil, Indonesia, India and elsewhere, who see the oil business now operating in their countries as high-tech, global and with a long and profitable future.
In short, oil contains lessons for all business--and a particular lesson for Southern California.
First of all, it can teach the power of technology to create new opportunities and renew old ones.
In the Russian Arctic, Texaco, Exxon, Amoco and Norsk Hydro, a Norwegian company, are awaiting Russian government approval to develop a 2-billion-barrel deposit. The approval is probably forthcoming, because Russia is in desperate need. Its oil production, which led the world only a few years ago, has fallen more than 50% since 1990.
“It needs U.S. technology and know-how to develop its oil,” says Daniel Yergin, head of Cambridge Energy Research Associates and co-author of “Russia 2010,” a new book about the former Soviet Union.
Others want help too. China is inviting U.S. companies to explore the Tarim Basin in its northwestern desert. Vietnam is granting oil concessions off its shores.
Those are forbidding areas. Oil can be developed economically only because supercomputers can interpret geological information faster and better, meaning fewer wells are drilled and less time is lost. Joseph Tovey of Tovey & Co., an investment bank that shares in a concession off Vietnam, reckons oil can be found and produced there for $2.50 a barrel, about what it cost for North Sea oil development 20 years ago.
Back home, new oil and gas have been found in old wells in the Gulf of Mexico, thanks to sound-wave techniques that can “see” through more layers of the Earth’s subsurface. On land, old wells are yielding new output because of better information and techniques involving steam and carbon dioxide injection.
All this is possible because more powerful computers reduce costs. “We now can do in hours what used to take weeks,” says Dirk Koerber, vice president of investor relations at Western Atlas International, a newly independent oil service firm spun off last month from Litton Industries.
That brings up Lesson 2: Information technology makes low overhead essential. The cost equations in the Gulf of Mexico or the Arctic Ocean make sense only if fewer people can do more work in less time. So big companies continue to downsize--even sell properties they cannot produce profitably, but which smaller companies can.
That has helped the little guy. “The number of solid, independent companies sank to only 19 in the ‘80s,” says Tom Petrie of Petrie Parkman, a Denver-based investment bank. “But now there are 45 good outfits like Anadarko, Apache, Louisiana Land. And the ranks are growing.”
Lesson 3: Globalization brings competition along with opportunity. As the big oil companies shift investment overseas, jobs shift also. There are exciting opportunities for geophysicists and petroleum engineers educated in U.S. universities. But for less-skilled jobs on rigs and drill sites, local employees will be hired. And all over the world, ambitious young people are studying for the high-skilled jobs too.
The business is oil and gas, but the most valuable commodity is knowledge.
“Frequently, national oil companies in other countries will send their brightest employees to study here,” says Prof. William Galloway of the University of Texas’ geological sciences department. “We educate them, and they work in their home country.”
Also, Petrie observes, “Houston is still the center of the world oil industry. Singapore and London are subcenters, but the know-how of world oil is in Houston.”
Houston is an object lesson for Los Angeles and Southern California. When oil prices dropped in the 1980s, Houston lost jobs, population, companies and real estate values. But what remained became stronger, and what endured was knowledge.
Southern California today remains a world center for knowledge in entertainment; computer software; aerospace science, from satellites to transport; commerce with Asia and Mexico; finance; housing, and patterns of living.
And knowledge has become the business of America. Whether in an oil field or a classroom, the United States is selling education and brainpower to the world. It’s a worthy export to other countries and an essential pursuit for our own people.
