Operating Economics: I. Crude Oil
N obody outside the oil industry can hope to gain more than the sketchiest idea of its technology; indeed, few people inside would claim they know it all. Along with the chemical industry, it was among the first of the 'science-based' industries; today, from one end of its long chain of operations to the other, it is still involved in steady improvement of the complex techniques that it employs. It is a safe generalization to say that this industry has a characteristic pattern of high fixed costs and low running costs, so that almost always the next barrel of oil that passes along the line costs less than the last one did. But to put meaning on the bones of that generalization, we need to consider the cost pattern of each of the main stages in the industry's operations.
The production of oil can logically be linked with exploration for it (in the past; unfortunately, there is no automatic link between present exploration and future production). For convenience rather than in logic, this chapter also includes a sketch of the specialized forms of long distance transport used to move oil. Tankers and pipelines, obviously, are used to move products as well as crude oil. But as crude accounts for a growing proportion -- now some 65-70 per cent -- of the oil moved in international trade, and a considerable proportion of the products move within self-sufficient countries such as the United States and Russia, it is convenient to consider oil transport primarily in terms of crude movement from producing areas onward towards the market. In a following chapter, the operating economics of processing crude oil into products that consumers can use and getting those products to the customers are considered. A third one glances at the economics of natural gas, which is a part of the petroleum industry and to a large extent overlaps oil operations, but over a large part of the world is now emerging as a partly competitive fuel in distinct circumstances of its own.