So I'm doing more work on our chapter on petroleum engineering. I'm collecting some demand-shifters to help identify a labor supply elasticity. Price of oil is an obvious one, but I've only got ten years of ACS to work with (there are just too few of these guys in the longer series of CPS data), so ideally I'd like some things that will vary within a given ACS panel too.
My first thought was proven reserves, perhaps also interacting this with oil price. New discoveries increase the demand for engineers, or old discoveries get more cost effective as prices increase.
So I'm looking at the Energy Information Administration's proven reserves data, and I'm curious about a few things... I just want to get my head around these data:
1. They jump around more than I would have expected. Why is this? Is this noise due to how the reporting is done, or is this going to represent a genuine change in the expectations of industry?
2. I'm surprised how many states have a downward trend over the last ten years. Is this really a peak oil thing? I was under the impression that we continue to make enough discoveries that concerns about peak oil can be misleading. Should I not be surprised these are declining?
EIA also has (1.) new field discoveries, and (2.) new resevoir discoveries in old fields, which I think will help to pin down what actually represents new news.
Any other ideas on demand shifters?
I'm not as familiar with US petroleum features as some other countries, but...
ReplyDelete1. Reserve figures tend to jump around a lot because of the several factors. The most important of which are (a) Simple revisions of previous estimates, (b) New discoveries, and (c) Definition issues, including a critical focus on what is economically obtainable.[*]
Now obviously, there is a lot of interplay between the above factors. E.g. High oil prices will induce more exploration at the same time as making already-discovered-but-hard-to-access wells more economically viable, etc etc. The biggest positive adjustments to (internationally) proven reserve figures in recent years have actually come from reassessments on existing reserves and not new discoveries. Indeed, such reassessments have served to keep the reserve-to-production (RP) ratio steady over the last few decades, more than any other factor I would say.
The biggest cause for (optimistic?) uncertainty purely i.t.o. of US petroleum reserves is shale gas and oil. Thrusting climate concerns to one side, the US is sitting on a veritable bonanza of shale reserves. Current oil prices are certainly conducive to continued exploration of these resources, so don't be surprised if we continue to see revisions over the next 5 years.
2. M King Hubbert's (in)famous curve of peak oil production has been historically applied to the "lower 48" US states with greater success than any almost any other part of the world. (As it happens, here's a good graph from Wikipedia illustrating this.) So, yes, in a sense this is a US peak oil story. However, it is also a very incomplete and misleading one, since the the Hubbert Curve fails to address the discovery of unconventional oils such as the aforementioned shale, say nothing of tar sands (though more applicable to Canada) and deepwater reserves in the Gulf of Mexico.
[*] I assume you've already seen this: "EIA defines proved reserves as those volumes of oil and natural gas that geologic and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Reserves estimates change from year to year as new discoveries are made, existing reserves are produced, and as prices and technologies change."
As to other demand shifters for petroleum engineers... I can't say for certain, but my best guess is that the relative proportion of shale production -- and other unconventional sources -- next to conventional reserves should mean that you have something of a (increasing) non-linear demand for engineers vis-a-vis historic trends. Being more complex operations by their very nature, you'd need more man power to process these resources.
ReplyDeleteIt's hard to say how you could/should model this as well, but using supply forecasts would seem the obvious place to start.
Of course, you could try and argue that the oil price would already capture such portfolio effects... However, a) Then you have have to worry about broader endogeneity issues (are prices being driven by demand or supply for oil, etc), and b) Prices themselves can offer a poor insight into profit margins.
This is great, thanks. It sounds like while it does jump around, it's not all noise.
ReplyDeleteOil prices may capture that already, but I assume oil is sufficiently fungible that you're not going to have a lot of regional variation in the U.S. in oil prices - that will be a shifter over time. The nice thing about the shale ratio suggestion is that it can help identify changes in the regional variation in petroleum engineer salaries.