by John Browne
Randomly drilling wells to find oil would achieve little. It would be like trying to find needles in a haystack. There are always clues that guide explorers to the areas more likely to be winners. An oilfield has certain essential characteristics. First, there needs to be a source for the oil. This source is the remains of plants and animals laid down millions of years ago, which have been subjected to the right pressure and temperature to form oil. Flying over the forests in the centre of Trinidad, I saw lakes of inky black oil which had bubbled up from just this sort of source. The La Brea tar pits in California were formed in a similar way. Both were clues to the presence of other oilfields. Second, the oil needs to get from the source into an overlying structure which can trap it. This often has a dome-like shape (an ‘anticline’) that sometimes expresses itself on the surface. Anticlines can be seen from the air in the Zagros foothills of Iran, my childhood home. These are the site of some of the greatest oilfields in the world. Third, the trap needs to be sealed by an impermeable rock. If the seal is breached the oil escapes. One of the most famous and most expensive wells, called Mukluk, that turned out be unsuccessful (a ‘dry hole’), was drilled in Alaska. For years, BP’s explorers were convinced that it was going to be a guaranteed success. It failed because the seal had been breached and the oil had seeped away. Finally, the structure needs to be filled with a sedimentary rock that can contain the oil in its pores (the so-called porosity) and let it flow. The ease with which the rock allows the oil to flow is called the permeability. If all these things come together then there is an oil reservoir.
Some of these characteristics can be identified by analysing how the geology of a place came together. For example, ancient river deltas often have good porous and permeable sand. In modern times, remote sensing is used to ‘see’ the oil reservoir many kilometres down, below many layers of rocks. The most important technique is seismic surveying in which pressure waves are used to ‘bounce’ off the deep rock strata. The way in which these seismic waves are transmitted and received needs very careful design. Complex algorithms and gigantic computer power is needed to analyse the collected data. There is not much signal and plenty of noise so the computer analysis is critical. In the best of circumstances the shape of the structure can be identified, the seal can be seen, the rock in the reservoir can be characterised and even the oil in the rocks gives off a particular signature. In more normal circumstances some but not all of these things can be identified. All of this is much harder if the reservoir is overlain by a thick salt layer, as is the case, for example, offshore in Brazil, Angola and the US Gulf of Mexico. Vibrational waves travel so fast through the salt that the layer masks the geological formations that lie underneath. The sudden change in the speed of the seismic waves, as they move from sediment into salt, causes the waves to be refracted and reflected so that the salt sheet acts like a mirror. Only recently have computer algorithms improved to allow these signals to be untangled and sub-salt reservoirs to be seen with a degree of accuracy.
Developing the oil
After all this is done, a well must be drilled to see if oil is there. Sometimes there is success but often not. In recent years the technologies of remote sensing have reduced the chances of failure but success is never guaranteed; Mukluk is a constant and powerful reminder.42
Once oil is found, the field then needs to be developed in such a way as to provide a return for the investor and rent for the owner of the subsurface rights, usually a government. But oilfields which are easy to develop are now mostly in production. What is possible to develop continues to change. In the first decades of the twentieth century companies began to move from developing oilfields on land to going out into the water and drilling wells in lakes, in Venezuela, Texas and Louisiana. Going out into the sea was more difficult because the water was deeper, the winds stronger and the waves bigger.
The most extraordinary offshore development I have ever seen is in the Caspian Sea off Baku in Azerbaijan. Oil slicks had been reported by local ships captains and, further out, rocky outcrops were coated in a black oily sheen. In 1947 the first ramshackle drilling platform was erected on the oily Caspian Sea rocks. More and more platforms followed, connected by makeshift wooden bridges. Boulders were shipped out from the mainland to build artificial islands. By 1955, Oily Rocks, as the stilted town came to be known, had become Azerbaijan’s largest producer of oil, exporting more than fourteen million barrels each year. Five-storey apartment blocks, shops and hotels rose out of the waters to house and sustain the increasing number of men working there. But the rest of the Caspian Sea’s rich oil reserves lay east of Oily Rocks, in deeper water. To tap these fields, sometimes as much as six kilometres below the surface, would demand more than just platforms propped up on stilts at the edges of the sea.
I first visited Baku and Oily Rocks in 1990, following the collapse of the Soviet Union, as BP began to negotiate a venture to explore that deeper part of the Caspian Sea.43 The state of the town was shocking: bad practice was rife and everything seemed to be leaking. The characters propping up the bars could have been taken out of a scene from Star Wars. Trapped behind the Iron Curtain, technology had gone backwards at Oily Rocks along with any hope of accessing the Caspian Sea’s deepest reserves. But not all hope was lost. Within the first few years of the new millennium, technology imported from the West was used to develop the super-giant Chirag-Azeri-Gunashli complex.
Developing oilfields in deeper and deeper water required an immense investment in technology. An example is the Thunder Horse field, developed with a monstrous floating structure, which we first met in the previous chapter, ‘Iron’. The field was beneath 2,000 metres of water, very different from the 200 metres in the Caspian or 20 metres at Oily Rocks. The capital cost is very high but, every year, technology improves and the cost of producing a barrel of oil decreases.44 And more can be achieved: developments in even deeper water, of course, but also extracting more of the oil that is in a reservoir. Today, typically 60 per cent or more of the oil is left behind after an oilfield stops producing. The reason for that lies in the economics; extracting more oil becomes increasingly costly and therefore unprofitable. And that cost is being challenged by technology.
Keeping the oil flowing
Henry Darcy, a nineteenth-century French engineer working in Dijon, was a careful observer. He watched water go through the different types of rock at the bottom of public fountains and wondered what controlled its speed. Soon he came up with an equation that described the rate of flow of a fluid through permeable rocks. It is called Darcy’s law and the measure of permeability is called the ‘darcy’ in his honour.45 The law gives us a way of explaining four different ways in which the flow of oil out of a reservoir can be improved, known collectively as enhanced oil recovery (EOR). First, if the natural pressure of the reservoir is too low to get the oil to the surface, you can increase it by injecting other fluids, such as water, natural gas, nitrogen or carbon dioxide.46 This is often the first and simplest method of improving the recovery of oil. Second, you can expose more of the reservoir to the well bore by, for example, drilling horizontally along the rock strata. Third, you can make the oil less viscous or prone to staying in the spaces between rocks (the oil is held there by a force called surface tension). One way to do this is to pump in fluids, particularly liquefied carbon dioxide, so that it mixes with the oil. Another way is to heat the oil. This is necessary for so-called heavy oil found in Canadian and Venezuelan tar sands.47
Finally, oil recovery can be improved by increasing the permeability of the oil-bearing rock. This is the oldest method of EOR, and one used since the very earliest days of the industry.
In 1865, Colonel Edward Roberts formed the Roberts Petroleum Torpedo Company. He had fought in the American Civil War three years earlier and had observed artillery rounds fired by the Confederate army exploding in dugouts in the battlefield. He thought that a similar blast could improve production from oil wells by fracturing the oil-bearing rock. By filling th
in metal tubes with gunpowder, lowering them into a well and igniting them, Roberts was able to create a surge in production from a well, albeit often only briefly. Later nitroglycerine became the preferred explosive medium. Unfortunately it would often detonate by accident, killing and maiming those nearby.48
These blunt methods became obsolete with the development of hydraulic fracturing in the middle of the twentieth century. By forcing fluids (often a mix of water, chemicals and sand) into rock formations in which oil or gas is trapped, hydraulic fracturing greatly increases the effective permeability of the rock so that more oil and gas can move to the surface.
There is a great deal of potential for EOR today. In some fields, as much as 80 per cent of the oil is left behind. In others, no production can be had without hydraulic fracturing; this is the case in the so-called ‘shale gas and tight oil’ developments in the US.
For some time it has usually still been cheaper to find and produce from new oilfields than to try and squeeze more out of ageing ones. In recent years, however, as the price of oil has risen, the potential for EOR has grown rapidly: in the five years up to 2009 the market for EOR was estimated to have increased by twenty times.
The end of ‘peak oil’
The amount of oil which is developed is not just driven by technology; it is also determined by future expectations of oil prices. These are, of course, governed by supply and demand. However, the presence of the Organisation of Petroleum Exporting Countries (OPEC), a cartel which controls around 40 per cent of global oil production, means that supply is often managed to achieve particular price levels. In very simple terms, oil prices, according to OPEC, should not be so low as to cause damage to their economies or cause domestic dissent or revolution; but they should not be so high as to dent demand or encourage too much supply from outside OPEC. Prices have varied broadly between these limits for many years.
All mineral resources are, of course, ultimately finite, and as a result there has always been a concern that the world may be about to run out of oil. In 1956, the American geologist Marion King Hubbert concluded that we would reach a point of maximum oil production, known as ‘peak oil’. Using estimates of future consumption and reserves, he predicted that this would occur sometime around the year 2000.49 But the year 2000 came and went without ‘peak oil’ happening. Indeed, it is not even on the horizon. This is because we are increasing the world’s oil reserves faster than we are using them. And that is mostly down to technology; we find oil in new places and invent new ways of recovering more of what has already been discovered. Increasing the recovery of our existing oil reserves by only 1 per cent would increase them by around ninety billion barrels, equivalent to about three years of global demand. As technologies improve, the percentage of recoverable oil keeps increasing and so supplies continue to get larger. I see no reason why this will cease soon and as a practical matter we probably will not run out of oil. We are more likely to have stopped using it long before we run out. As Sheikh Yamani, Saudi’s former oil minister said in the 1970s: ‘The Stone Age didn’t end because we ran out of stones.’50
The financial and technological effort needed to deliver a barrel of oil is extraordinary. To make the oil into petrol takes even more work. It needs to be refined into just those types of hydrocarbons that an engine needs. Even at $4 a gallon, gasoline seems cheap after all this work. It is, after all, cheaper than most bottled mineral water served in chic restaurants in New York City, London or, indeed, Florence, where, a few years ago, I was stunned when offered a small bottle of Tennessee mineral water that cost more than a whole barrel of oil. And bottling water is certainly not as risky as producing oil.
Accidents keep happening
24 March 1989: the news came through just as I was saying farewell to the BP team on Alaska’s North Slope. The Exxon Valdez oil tanker had run aground on Bligh Reef in Prince William Sound. The ship had been sailing outside the normal sea lane to avoid icebergs, but in doing so had run aground on the rocky seabed. We were about to fly back to Anchorage and so diverted the plane to fly over the tanker. As the Exxon Valdez came into view ahead of us, we could see her side split open and oil seeping out to form a black smudge around her. Soon, this small pool of oil would spread to cover an area of 30,000 square kilometres.
This was by no means the first or the largest oil tanker spill. As I stared out of the aeroplane window at the Exxon Valdez below, I thought of Amoco Cadiz, another oil tanker that ran aground off the coast of France in 1978, and of the Atlantic Empress, which collided with another ship off Trinidad and Tobago in 1979. Between these accidents 500,000 tonnes of oil was spilt, compared to 39,000 tonnes from the Exxon Valdez. However, the Alaskan accident was the first time so much oil had been released into an environmentally important ecosystem.51 Storms pushed the thick black oil on to the rocky beaches, covering 2,000 kilometres of pristine coastline and resulting in the deaths of 250,000 seabirds. Many otters and seals were also killed and the herring population, on which many local people depended for their living, was virtually wiped out. Images of the oil slick set against the white backdrop of the Alaskan mountains filled the front pages of newspapers around the world. Seabirds, feathers black and tangled, were held up to the camera lens, an emotional reminder of the dangers of oil extraction.
Oil is a liquid and so spills are hard to contain, while the flammable nature of oil, and the gas found with it, can create a serious danger to human and animal life. On 6 July 1988, while I was working for BP in Ohio, the news came through that there had been a serious accident on Occidental Petroleum’s Piper Alpha platform in the North Sea oilfield. A large number of gas explosions had engulfed the platform in fire. Workers who had not been killed in the blasts were left sheltering in the increasingly smoke-filled accommodation block. Others took their chances and leapt 60 metres into the water below. Of the 226 people on the platform at the time of the accident, 165 died. The incident sent shock waves through the oil industry: everyone realised that it could just as easily have happened to them. Big advances were made in process safety in the wake of the Piper Alpha disaster, but they were not enough to prevent the saddest and probably worst day of my working life in March 2005, when an explosion occurred at BP’s Texas City refinery, killing fifteen and injuring more than 170.52
Most recently and most dramatically, in April 2010 a bubble of methane gas escaped from the Macondo oil well in the deep waters of the US Gulf of Mexico. The blowout preventer had failed; as a result, gas rose up the last sections of drill pipe and reached BP’s Deepwater Horizon drilling rig. The gas ignited, causing an explosion that killed eleven people. Macondo became unplugged. Oil began to seep into the ocean and continued to do so for almost three months. I watched with despair as the disaster unfolded and cameras, more than 1,500 metres underwater, showed the oil leaking into the sea. Macondo was the first real-time industrial disaster; you could switch on the TV and watch the oil seeping out every hour of every day.
There are significant risks involved in our extraction of oil resources. Even with lessons learnt from past incidents and the very best of practices, accidents continue to happen. For example, between 2000 and 2010 there were, on average, just over three large oil spills a year, in which more than 700 tonnes of oil were spilt. The unprecedented scale of the Macondo explosion and oil spill was a sharp reminder that, as we push out the limits of technology, we expose ourselves to new things going wrong. In hindsight, the cause of an explosion or spill seems obvious, with mechanical inadequacies amplifying human error. But neither equipment nor human processes can be made entirely risk-free and safe. And this is something we all should remember as we take oil for granted.
Technology underpins oil’s progress but this is merely one side of the story. The oil business is one of the most ruthless and cut-throat in the world. The politics of oil, the characters, companies and countries who struggle to control reserves, determine how this form of carbon contributes to our lives. In that mix, one individual stands out as ha
ving the single greatest impact on the development of the oil industry.
Oil conveys power
John D. Rockefeller looked upon the early wildcat oil prospectors with disdain. On a visit to Oil Creek, near Colonel Drake’s original oil strike in Titusville, Pennsylvania, he was appalled by their loose morals. Thousands had swarmed to the area in the hope of striking lucky. They brought with them disorder, verging on chaos, sinking wells wherever they could buy land. Where, when and how much oil would be discovered was anyone’s guess and prices fluctuated wildly. Soon, so many men were producing oil that prices began to fall sharply because of overproduction. Rockefeller, then the owner of a Cleveland refinery, decided that something had to be done. In January 1870 five men, led by Rockefeller and his partner Henry Flagler, founded the Standard Oil Company. His goal was simple: to combine the dominant oil companies of Ohio and so reduce excess capacity and take control of the price fluctuations that threatened his business.
Rockefeller was as daring as the early oil wildcatters, but he was also rational, calculating and measured. From an early age he appreciated the economies of scale. As a boy, he would buy candy by the pound, before dividing it into smaller portions to sell at a profit to his siblings. Rockefeller recognised not only the profitability of scale, but also the stability that it brought. He integrated his own oil supplies with his own distribution network and created his own infrastructure, at first making his own barrels, and then buying pipelines, tankers and trains. Rockefeller enhanced Standard Oil’s competitive position and insulated its overall operations from the actions of others in the market. So big were Rockefeller’s operations that he could force discounts from the rail and shipping companies that were not his own, and so undercut competition further.