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  • The global petroleum industry lives and dies by the price of oil.

  • This number—a gauge of the average amount paid for a barrel, 42 gallons, or 159 litersis

  • responsible for enormous shifts in the field.

  • Shifts that lead to the rise of some nations, and the fall of others.

  • Shifts that change where and how people get their energy.

  • That's because, just because there's more or less one global price, there are innumerable

  • different production costs depending on where and how the oil is extracted.

  • One country's barrel of oil can cost dozens of times more than another's, but then even

  • within the same country the costs are not the same.

  • It's more of a curve.

  • A given country's cost looks more or less like this.

  • At a lower level of production, the average overall cost to produce a barrel of oil would

  • be a certain amount but then, as total production increases, that average per-barrel cost also

  • increases up until a point where the curve turns into a nearly vertical line, because

  • a country's production capacity has been reached.

  • This is because oil is found in plenty of different places.

  • Sometimes it's found under a big empty field near a major road, but sometimes its found

  • under thousands of feet of ocean nowhere near the coast.

  • Between these two, it's pretty easy to understand where it would be more expensive to extract.

  • On that national cost curve, though, one must also put a horizontal line.

  • That's the oil price.

  • If the price is here, then it makes sense to produce up to that amount of oil.

  • Any more and a barrel of oil would cost more to produce than what it sells for.

  • If the oil price moves up, though, then it makes sense to increase production even when

  • it raises the cost per barrel, and that's what happened for most of the last fifty years.

  • The oil price rose, with some up and down, from $20 in 1973 to a peak of over $140 in

  • 2008.

  • Throughout that time, as long as an oil company could find a way to produce a barrel of oil

  • for less than the current price, they were guaranteed a profit.

  • That's what brought them from the field to the ocean.

  • Offshore oil rigs are inherently a higher-cost, higher-risk method of oil extraction, but

  • the oceans are, of course, home to a huge proportion of the world's oil reserves so,

  • if there are no more low-cost oilfields on land, that's where the companies go.

  • Before starting operations, though, these companies need to decide exactly where to

  • go.

  • Now, usually, oil platforms are installed where there are already plenty of other platforms

  • such as in the Persian Gulf, the Gulf of Mexico, or the North Sea.

  • They cluster together.

  • Within these areas, though, they need to determine which exact spot has the greatest potential

  • for oil extraction, so geologists conduct surveys using ships and satellite imagery.

  • Once that spot is selected, a rig will be towed to its location and installed.

  • Once they're put in location, offshore oil platforms often don't move for yearsthey're

  • intended for long-term operation in a single spot.

  • Despite this, though, they operate quite differently from ships.

  • Usually, those working onboard have a shift of 12 hours a day, every day, for a period

  • of two or three weeks, followed by two or three weeks off onshore.

  • Keeping those work hours dense means that fewer people onboard are not working at a

  • given time, which means that less space is needed for accommodations.

  • But of course, this pattern means that there's quite a lot of back and forth between shore

  • and rig.

  • For that, they use helicopters.

  • This is actually one of the largest commercial applications of helicopters and huge companies

  • have emerged, especially in the past few decades, to serve offshore oil rigs.

  • For example, Bristow Aviation, one of the largest, has a fleet of almost 500, mostly

  • used to make these offshore flights.

  • The North Sea oil field is primarily linked with Aberdeen, Scotland, onshore, at least

  • for its UK-owned or operated platforms.

  • Aberdeen airport—a primarily regional airport that only has commercial passenger flights

  • to a couple dozen European destinationshappens to be the world's busiest heliport.

  • About 100 large helicopters take off from here each day, mostly flying out to the North

  • Sea.

  • But Aberdeen is also linked to the oil fields another way.

  • It serves as a hub for the ships that service the rigs.

  • Now, especially in the North Sea, oil makes its way from the rigs to shore by undersea

  • pipeline, so there isn't a need to bring much back, but they do need to be frequently

  • replenished with suppliesboth for the humans, and the rig's operations.

  • That's the job of platform supply vessels, which are essentially mini, short-range, flexible

  • cargo ships.

  • Aberdeen Harbor is always abuzz with activity, filing up these vessels, to keep the hundreds

  • of offshore platforms themselves supplied.

  • Onboard, there are essentially three types of jobs: production, those directly involved

  • with the extraction and processing of oil, maintenance, those who keep the facilities

  • and equipment in working order, and service, those who cook or clean or care for the rest

  • of the crew.

  • There's always a focus, within the companies operating these platforms, to minimize the

  • numbers of people working actually onboard as much as possible.

  • It's expensive first to transport and supply these workers, and then their salaries are

  • also considerably higher than typical onshore salaries in the petroleum industry.

  • An average offshore salary in the UK is around 60 or 70 thousand dollarsnearly double

  • the national average wage.

  • Therefore, most management and high-level decisions are made by workers back onshore

  • who video conference in to the platforms to coordinate.

  • Workers onboard are, for the most part, strictly operational.

  • On the inside, these platforms look a lot like ships.

  • The rooms are small and the recreation areas are sparse.

  • There isn't, after all, much down-time given the long hours while onboard.

  • The platforms are more or less self-sufficient.

  • Even though they're usually within a couple hundred miles of shore, ships only resupply

  • sporadically and helicopter flights are expensive, so water and electricity are produced onboard.

  • As you would image, the rigs themselves are also hugely expensive to build.

  • That's because, what you see, the platform, is only a small component of the overall structure.

  • With all designs, there's hundreds or thousands of feet of undersea drilling equipment, but

  • with some, there's far more.

  • Certain platforms are floating, anchored to the ocean floor, but others are rather massive

  • undersea towers.

  • The tallest in existence is the Petronius platform which has almost 2,000 feet or 600

  • meters of undersea towering to support the platform itself.

  • This made it, until the opening of the Burj Khalifa in 2010, the tallest free-standing

  • structure in the world.

  • The development, construction, and installation costs of this platform were therefore about

  • $500 million.

  • And, in fact, those costs are completely typical, if not low.

  • Plenty of platforms cost far closer to a billion dollars.

  • So, the question that oil companies are now beginning to pose would be: is it worth it?

  • Well, there's the short-term answer to that question and there's the long-term answer.

  • In the short-term, the answer is definitively no.

  • At the time of writing, in April 2020, oil prices are hovering in the 20s of dollars

  • per barrelartificially lowered by a price war between Russia and Saudi Arabia, and naturally

  • lowered by a drop in demand due to the COVID-19 pandemic.

  • There likely is not a single offshore oil platform in the world turning a profit at

  • those prices.

  • Places like the North Sea, which have particularly high costs due to their workforce coming from

  • relatively high-wage countries like Scotland, England, and Norway, have seen their output

  • reduced since oil reached a peak price up until 2014.

  • It's just far cheaper to buy oil from onshore production facilities.

  • So, in the year of 2020, oil platforms just don't make sense.

  • In the longer term, though, oil platforms could turn a profit, and that's why they're

  • kept around.

  • In a high-price oil environment, there likely isn't enough onshore capacity to fulfill

  • demand and so these offshore platforms are how oil companies fulfill demand to increase

  • profits.

  • There's much less short-term flexibility with offshore platforms than on-shore installations,

  • so typically the oil platforms are kept running, in the medium-term, and then in the short-term

  • onshore production is scaled more to demand.

  • But there are long-term costs that oil companies might not have fully previously considered

  • when offshore production first began at a large scale decades ago.

  • This was all realized with the BP Deepwater Horizon platform's explosion and subsequent

  • oil spill in 2010.

  • Almost 5 million barrels spilled out into the Gulf of Mexico.

  • The full economic and environmental costs are still not fully realized, a decade later,

  • and they certainly far eclipse the costs borne by BP itself, but the company spent about

  • $65 billion cleaning up and settling claims related to the incident, and their market

  • value dropped by about $60 billion.

  • That's equivalent to about two to three years of their profit.

  • And it's not like the Deepwater Horizon will be the last oil spill.

  • There might have been reforms, and there might be more attention, but oil spills are just

  • a byproduct of the business.

  • The immense cost they impose on both the companies responsible, and the areas they alter will

  • not go away.

  • Even without considering their immense environmental cost, to the company, oil platforms have emerged

  • as high-risk, low-reward alternatives to onshore extraction methods.

  • That's not a desirable combination by itself, and its coupled with widespread public sentiment

  • against offshore drilling.

  • That's a losing combination, for everyone, and for that reason, there really hasn't

  • been any expansion in the industry in the past decade and a half.

  • The world has been producing about 20 million barrels of oil from offshore sources per day

  • since about 2005, despite oil demand increasing, and yet there's little evidence that this

  • will ramp up in the future in a free-market environment.

  • The only reason it might is if governments artificially prop up this production method

  • in order to ensure their oil needs are fulfilled domestically.

  • That's possible in a place like the UK, with vast offshore production but very limited

  • onshore, but with the recent decline in North Sea oil, it's not a future that oil companies

  • themselves are likely interested in pursuing.

  • This isn't some great win for the environment, thoughonshore extraction is hardly better

  • than offshorebut it does mean that, in the current oil environment, the makeup of

  • who, how, and where the world gets its energy is changing ever faster.

  • The story of the Deepwater Horizon explosion and spill is a fascinating one, and there's

  • a great book that goes into immense detail of the saga the workers on the platform went

  • through to save lives and escape in its first hours.

  • It's called Fire on the Horizon, and it gives a fantastic glimpse into the perils

  • of such a job.

  • Like many great stories, it is available as an audiobook on Audible, so that means that,

  • by signing up for a trial at audible.com/Wendover, or by textingwendoverto 500-500, you

  • can get it for free.

  • If that doesn't sound like your thing, though, and you're a sci-fi fan like me, I would

  • wholeheartedly recommend Recursion by Blake Crouch.

  • It's a terrifically unique story, and its performance on Audible is fantastic.

  • So, once again, by signing up at audible.com/Wendover, you can get Recursion, Fire on the Horizon,

  • or any audiobook for free, plus two free Audible originals, and you'll be supporting Wendover

  • Productions while you're at it.

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How Offshore Oil Rigs Work

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    joey joey posted on 2021/06/09
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