02 The Oil Industry

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Photo courtesy of Woodside Energy
 Objective
• Understand what the industry is about
• Gain an understanding of how it began
• Appreciate where it is today
• Anticipate where is it going
• Understand the structure and role of
engineering personnel in oil and gas
corporations

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 Outcome
Upon successful completion of this section you
should be able to:
• Describe what oil and gas are, and what they can
be used for
• Recall the humble beginnings of the modern oil
industry and draw a timeline which details the
development of the industry
• Describe the current state of the art and identify the
challenges which the industry is currently faced with

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 Outcome
And you should be able to:
• Understand the role and interactions between
common technical disciplines in an oil and
gas corporation

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 What is Oil and Gas?
• Crude oil is composed of short chain
molecules and long chain molecules
– Short chain molecules
• Have a low boiling point
• Can be used as fuel
– Long chain molecules
• Have a high boiling point
• Can be used as lubricants

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 What is Oil and Gas?
• Natural gas is composed of very short
chain molecules
– Have a very low boiling point
– Can be used as fuel
– Can be used as feedstock for
petrochemical production

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Uses of Oil and Gas

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 Hydrocarbons
• CH4 Methane C1
• C2H6 Ethane C2
• C3H8 Propane C3
• C4H10 Butane C4
• C5H12 Pentane C5
• C6H14 Hexane C6
• C7H16 Heptane C7
• C8H18 Octane C8
• C9H20 Nonane C9
• C10H22 Decane C10

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What is Oil and Gas?

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 Molecular Structures

Methane
Ethane
Propane Butane

Pentane Hexane Heptane Octane

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 Oil and Gas Formation
• Formed from plant, animal and algae
remains
• that were buried and compressed under
sediment and water
• that were at a temperature between 100
and 200oC
• that stayed there for 100 to 200 million
years or more
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 Life of an Oilfield
• Exploration
• Drilling
• Facilities Design, Construction,
Installation and Commissioning
• Production, Operations and
Maintenance
• Abandonment and Decommissioning
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“Oils aint oils”…….

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 The Oil and Gas Industry
• Upstream - exploration, drilling,
production and transmission
• Downstream - refining and distribution

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Life of an Oilfield

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 Humble Beginnings
Exploration
• Sumerians, Assyrians, and Babylonians
gathered oil from surface seeps over 5000
years ago
• USA - pre 1800 American Indians collected
oil from streams
• USA - 1872 Lumbermen felling trees noticed
an oily substance on parts of the Allegheny
River in Pennsylvania

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 The current state of the art
Exploration
• 3D Seismic
• Remote sensing
• Computer modelling
• Modeling of tectonics
• Modeling of
depositional
environments
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Humble Beginnings

Drilling
• Wooden salt-water
well drilling rigs
utilised a pole rising
and falling on rope
to chip away the
rock.
• Vertical Wells only

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Humble Beginnings

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 The Current State of the Art
Drilling
• Horizontal and extended reach drilling
• Ultra-deepwater drillships drilling in waters
3000 metres deep
• Satellite and ocean-bottom dynamic
positioning systems
• Thrusters keep the vessel within 2 metres
without anchors
• Automated Rig Floor Operations

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 The Current State of the Art
Drilling
• Semi-submersible
drill rigs with satellite
dynamic positioning
can drill in up to
2500m water depth

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 The Current State of the Art
Drilling
• Wells can now be
drilled vertically,
deviated and
horizontally
increasing the area
of contact with the
reservoir.

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 Humble Beginnings
Production
• 1872: Oil soaked up with woollen
blankets bottled for medicinal purposes
“Seneca Oil”
• 1873: Oil from drilled wells brought to
surface using water pumps from salt
industry

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 The current state of the art
Production
• Spar platforms for ultra-deepwater
• Subsea Completions
• Floating Production and Storage (FPS)
Vessels

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 The current state of the art
Production

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 Humble Beginnings
Processing
• Allowing oil and brine water mixture to
settle in a tank until the brine could be
released from the bottom of the tank

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 The Current State of the Art
Processing
• Centrifugal separation of
oil, gas and water
• Offshore processing
• Subsea processing
• “Gas to Liquids”
conversion
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 Humble Beginnings
• Transportation - from wooden barrels on
carts, wooden barrels on boats, steel
tanks, to train tankers and finally
pipelines

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 The Current State of the Art
Transportation
• Transcontinental and subsea
intercontinental pipelines
• Reticulation of domestic gas
• Open access to pipelines
• Bulk Crude Carriers
• LPG and LNG Tankers
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 The Current State of the Art
Transportation

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Image provided by Woodside Energy Limited
 Humble Beginnings
Refining
• Oil distilled in
whiskey stills to
make kerosene for
lamp oil
• Later one of the
waste products,
gasoline, was used
in engines

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 The Current State of the Art
Refining

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 Refinery Products
• Click here to see a few of the common
household items that are made from oil
and gas (be sure to close the movie
before continuing with the course)

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 World Petroleum Exploration
• Most petroleum is contained in a few
large fields, but most fields are small
• As exploration progresses, the average
size of the fields discovered decreases,
as does the amount of petroleum found
per unit of exploratory drilling
• In any region, the large fields are usually
discovered first
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 Petroleum Production &
Consumption
% World Crude Oil Production (1999)

USA
13%
Saudi Arabia
11%
Rest of Russia
World 10%
58% North Sea
8%
% World Crude Oil Consumption (1999)

USA
25% Japan
8%

Rest of Former
World Soviet
55% Union
China 6%
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6%
 World Petroleum Production
• 50,000 oil fields have been discovered
since 1860
• 90% of these fields are insignificant in
their impact on world oil production
• Fewer than 40 supergiant oil fields (with
> 5000 million bbl) have been found
worldwide, which contained 50% of all
the oil so far discovered
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 Rate of Usage
• The first 200,000 million barrels of world
oil were produced in 109 years from
1859 to 1968. Since that time world oil
production rates have stabilized at a
rate of about 22,000 million barrels a
year

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 Rate of Usage
• Total world oil endowment is about
2,390,000 million barrels.
• 77% has already been discovered and
30% has already been produced and
consumed
• This estimate predicts world oil production
volumes could be sustained to about the
middle of the 21st century
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 Supergiant Oil Fields
• Middle East 29
• China 2
• Mexico 2
• Russia 2
• United States 2
• Algeria 1
• Libya 1
• Venezuela 1

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 The World's known
recoverable oil
• The world-class giant fields plus the
supergiants, account for about 80% of
the world's known recoverable oil.
• Less than 5 percent of the known fields
originally contained roughly 95% of the
world's known oil.

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 Total Oil Resources of the
World
Region Total Oil % World
Endowment Endowment
(Billion Barrels)
Western Europe 70 3%
Central Asia and Transcaucasia 79 3%
Africa (including North Africa) 167 7%
Oceania and Asia 171 7%
South America 211 9%
Eastern Europe (including Russia) 281 12%
North America 429 18%
Middle East 982 41%
Total world 2,390
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 Undiscovered Oil Resources
of the World
Region Cumulative Reserves Undiscovered
Production Resources

Middle East 20% 68% 12%

South America 35% 44% 21%
Eastern Europe (including Russia) 40% 37% 23%
North America 47% 25% 28%
Africa (including North Africa) 34% 37% 29%
Western Europe 33% 27% 40%
Oceania and Asia 26% 26% 47%
Central Asia and Transcaucasia 20% 30% 49%
Total World 30% 47% 23%

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 Current Major Oil Territories
• The Middle East = 41% of the world's total
oil
• North America has already produced
almost half of its total oil
• Eastern Europe, because of the large
deposits in Russia, is well endowed with oil
• Western Europe has most of its oil under
the North Sea

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 Future Major Oil Territories
• Africa, Asia, and South America are thought
to have only relatively moderate amounts of
oil
• A large undiscovered oil resource is believed
to exist in North America, which has many
frontier basins
• Both the Middle East and Eastern Europe are
thought to contain significant oil prospects

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 Current challenges
Economics
• Construction of large oil platforms takes
11,000 man-years which makes
extraction of North Sea oil cost 4 times
the $2 for Middle East oil

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 Current challenges
• Lowering the extraction cost by:
– Utilising the latest technologies
– Rationalising operations
– Gaining economies of scale by merger and
acquisition
– Vertical integration

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 Current challenges

• Lowering the cost of discovering

resources
– The remaining 23%, mostly located in
smaller fields is expected to become ever
more expensive to find and to recover
– As oil exploitation moves into deeper waters
or under Arctic ice, the cost will further
escalate and will be reflected in the world
economy
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 Current challenges

• Environmental considerations
– Exploration in “World Heritage Areas”
– Oil transportation in “Ships of Shame”
– Global warming
– Acid rain
– Effect of seismic surveying on marine life
– Decommissioning of depleted fields

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 Will we ever run out of oil?
- No!
• New methods of exploration
• Deep water drilling
• Improved management of reservoirs
• New technologies for making oil from
gas
See here for details: http://www.britannica.com/bcom
/magazine/article/0,5744,78472,00.html?query=run%20out%20of%20oil

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 Industry Segmentation
• Upstream - (E&P) Exploration, Drilling and
Production (including processing)
• Transmission - pipelines and shipping
• Downstream - Refining
• Distribution - domestic gas supply,
refueling stations
• Power Generation - production of
electricity
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 Disciplines involved in the
“Upstream” sector:
• Geologists
• Geophysicists
• Petroleum Engineers
• Offshore Engineers
• Mechanical Engineers
• Electrical Engineers

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Additional disciplines involved
in the “Upstream” sector:
• Process Engineering
• Safety Engineering
• Environmental Engineering
• Corrosion Engineering

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 Petroleum Geology
Is the scientific analysis of subsurface data
to:
• Predict the location of traps where
hydrocarbons may have accumulated
• Estimate the extent of reserves using
seismic and geological survey evidence
• Recommend the most appropriate drilling
and production methods
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 Geophysics
• Is the science concerned
with the evaluation of
subsurface strata and
fluids using various
physical phenomenal such
as resistivity and
radioactive responses.

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 Petroleum Engineering
• Is concerned with maximising the value
of hydrocarbon extraction through
effective field development

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 Petroleum Engineering
• Is split into the following disciplines:
– Reservoir Engineering
– Drilling Engineering
– Well Engineering
– Formation Evaluation
– Production Engineering

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 Reservoir Engineering
• Is the science concerned with the
evaluation of petroleum resources and
the mechanisms behind their
displacement and origin

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 Drilling Engineering
• Is the science concerned with the best
way to get down through the ocean and
rocks to the oil

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 Well Engineering
• Is the design and development of
equipment to produce the well fluids

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 Production Engineering
• Is concerned with the maximisation of
petroleum production

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 Offshore Engineering
• Is concerned with the
design, construction,
installation and
maintenance of
structures, pipelines
and vessels utilised for
the extraction and
processing of oil and
gas
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 Mechanical Engineering
• Is concerned with design, construction,
installation and maintenance of static
and moving equipment utilised to
produce, process and store oil and gas

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 Electrical Engineering
• Is concerned with the generation,
distribution and control of power for
processing and production equipment
• It also has a sub-set of Instrumentation
and Control Engineering for the
monitoring and control of production
and process equipment,
communications and safety systems
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 Process Engineering
• Is concerned with the separation and
processing of well fluids into pure oil,
gas and water

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 Safety Engineering
• Is concerned with the cost effective
minimisation of impact on the losses
caused by injury and damage to
personnel and equipment

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 Environmental Engineering
• Is concerned with the cost effective
minimisation of impact on the flora and
fauna due to exploration and operations

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 Corrosion Engineering
• Is concerned with designing structures
and equipment for cost effective
protection against corrosion by the
correct selection of materials and
implementation of corrosion inhibition

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 Disciplines involved in the
“Downstream” sector:
• Chemical Engineering
• Mechanical Engineers
• Electrical Engineers
• Safety Engineering
• Environmental Engineering
• Corrosion Engineering

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 Chemical Engineering
• Is the chemistry of selective separation
and joining of oil and gas constituent
parts into saleable products

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Oil & Gas Corporation
Discipline Based
Managing D irector

Region A Region B
D irector D irector

A sset 1 A sset 2 Asset 3 A sset 4

Manager Manager Manager Manager

Manager Manager
Reservoir E ngineering P rocess E ngineering

Manager Manager
Pipelines F acilities E ngineering

Manager
W ell C onstruction 71 of 74
 Oil & Gas Corporation
Asset Based
Managing D irector

Region A Region B
D irector D irector

Asset 1 Manager Asset 2 Manager Asset 3 Manager A sset4 Manager

Manager Manager Manager Manager Manager Manager Manager Manager

Reservoir Engineering W ell C onstruction Reservoir E ngineering W ell C onstruction Reservoir E ngineering W ell C onstruction Reservoir E ngineering W ell C onstruction

Manager Manager Manager Manager Manager Manager Manager Manager

P rocess Engineering P ipelines P rocess Engnieering Pipelines P rocess E ngineering P ipelines Process E ngnieering Pipelines

Manager Manager Manager Manager

Facilities E ngineering Facilities E ngineering Facilities Engineering Facilities Engineering

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 Review
In this section we have discussed:
• Humble beginnings of the modern oil industry
• The timeline begins 5000 years ago but most
development of the industry has been in the
last 100 years
• The offshore industry began only 50 years
ago

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 Review
• The challenges for the industry are the
development of “stranded” oil and gas
reserves in deep water, whilst maintaining
economic, environmental and health and
safety requirements
• The industry is divided into sectors within
which a multitude of Engineers work to find,
produce, process, transport and refine the oil
and gas
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Pop Quiz
Time!
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 Pop Quiz Questions
Q 2.1 What are oil and gas formed from?
Q 2.2 When was oil first gathered?
Q 2.3 Name 2 of the disciplines involved
in the “Upstream” sector.
Q2.4 Where are 2 of the major
“Undiscovered” oil resources of the
world?

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 Pop Quiz Answers
Q 2.1 What are oil and gas formed from?
Oil and Gas Formation
• Formed from plant, animal and algae
remains
• that were buried and compressed under
sediment and water
• that were at a temperature between 100
and 200oC
• that stayed there for 100 to 200 million
years or more
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 Pop Quiz Answers
Q 2.2 When was oil first gathered?
Humble Beginnings
Exploration
• Sumerians, Assyrians, and Babylonians
gathered oil from surface seeps over 5000
years ago
• USA - pre 1800 American Indians collected
oil from streams
• USA - 1872 Lumbermen felling trees noticed
an oily substance on parts of the Allegheny
River in Pennsylvania

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 Pop Quiz Answers
Q 2.3 Name 2 of the disciplines involved
in the “Upstream” sector.
Disciplines involved in the Additional disciplines involved
“Upstream” sector: in the “Upstream” sector:
• Geologists • Process Engineering
• Geophysicists • Safety Engineering
• Petroleum Engineers • Environmental Engineering
• Offshore Engineers • Corrosion Engineering
• Mechanical Engineers
• Electrical Engineers

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 Pop Quiz Answers
Q2.4 Where are 2 of the major
“Undiscovered”
Region oil Cumulative
resources of the
Reserves Undiscovered
world? U n d is c o v Production Resources
e r e d O il R e s o u r c e s
Middle East o f t h 20%
e W o68%r ld 12%
South America 35% 44% 21%
Eastern Europe (including Russia) 40% 37% 23%
North America 47% 25% 28%
Africa (including North Africa) 34% 37% 29%
Western Europe 33% 27% 40%
Oceania and Asia 26% 26% 47%
Central Asia and Transcaucasia 20% 30% 49% 80 of 74