Tags: Energy | Technology | Economy | Changes

Energy Sector Buys Technology, Fires People

Energy Sector Buys Technology, Fires People

By Tuesday, 25 August 2015 04:49 PM Current | Bio | Archive

Crude oil dipped below $40 last Friday for the first time since 2009. The entire globe was in recession back then. Why the weakness now?

Lower prices are the result of falling demand and/or rising supply. Currently we have both. Demand is falling because China’s torrid growth is finally easing.

Supply is rising because Iraqi and Iranian oil is back on the market, the Saudis are pumping hard, and North American shale production is stretching storage capacity.

Last week in my blog "OPEC is Toast," I explained how new technology is driving down production costs in U.S. shale fields. This creates some counterintuitive consequences.

Investors and portfolio managers have always assumed lower oil and gas prices are bad for energy companies. Now it is not necessarily so. If the oil price drops $5 per barrel but production costs fall $10 a barrel, a company can actually be more profitable.

One result is we all get to enjoy lower fuel prices. That’s nice, but there is also a dark side.

The reason production costs are falling is that the new oilfield technologies need fewer human workers. The technology is expensive - but it costs less than people do.

One small example: some fracking operations use massive, truck-sized pumps that run on diesel fuel. Costly tanker trucks deliver diesel daily to run these pumps, often in remote locations.

Newer pumps can run off the natural gas that the well emits as a byproduct of crude oil. Those pumps don’t need diesel fuel deliveries, which means no tanker trucks – and no well-paid truck drivers.

The “rig count” is another once-reliable metric that has lost its meaning. Intelligent drill bits mean the same rigs can now dig multiple holes in different directions without moving an inch. Better geophysical data means rigs are more likely to hit their targets the first time, too.

Setting up, tearing down and moving a drill rig is a labor-intensive process. Fewer rigs that move less frequently require less labor.

The days when a welder or truck driver could make a six-figure income in the oil fields are ending. The jobs lost in layoffs over the last year may never return.

That means we can add energy to the list of industries in which technology killed jobs and automation replaced people. Economic stimulus from the resulting lower fuel prices will create new job opportunities, eventually, but the transition from here to there could be rough.

The energy industry is changing. The economy will change with it.

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Crude oil dipped below $40 last Friday for the first time since 2009. The entire globe was in recession back then. Why the weakness now? Lower prices are the result of falling demand and/or rising supply. Currently we have both. Demand is falling because China's torrid...
Energy, Technology, Economy, Changes
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2015-49-25
Tuesday, 25 August 2015 04:49 PM
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