Technological progress and the availability of European oil and gas resources
Roberto F. Aguilera
⇑
, Ronald D. Ripple
1
Centre for Research in Energy and Minerals Economics (CREME), Curtin Business School, Curtin University, GPO Box 1987, Perth 6845, Australia
article info
Article history:
Received 2 September 2011
Received in revised form 9 February 2012
Accepted 25 February 2012
Available online 27 March 2012
Keywords:
Technological progress
Availability
Conventional oil and gas
Europe
abstract
This paper estimates supply cost curves for conventional oil and gas in Europe. Oil and gas volumes are
distributed across five categories that are based on production costs. The resulting supply figures are
intended to be long term representations of how quantities vary with production costs. Both economic
and physical measures are used since each provides practical information with respect to the concerns
some energy commentators have expressed about oil and gas scarcity in the near future. Supply cost
curves incorporating the effect of annual technological advancement (i.e. productivity gains) on produc-
tion costs to the year 2030 are also estimated. On the quantity side, the curves include volumes from geo-
logical provinces not previously assessed. Results indicate that conventional oil and gas in Europe is
abundant and can likely be produced at costs below current and projected market oil and gas prices.
Ó 2012 Elsevier Ltd. All rights reserved.
1. Introduction
Oil and gas resources have provided much of the world’s energy
in the 20th century and are expected to be an important part of the
energy mix well into the 21st century [1]. Currently, conventional
oil and gas provides approximately 65% of primary energy con-
sumption in Europe [2]. However, energy security in the region re-
mains a concern. The concern is reinforced due to Europe’s
dependence on oil and gas from other regions. In addition, many
commentators fear domestic oil and gas resource depletion will
produce significant supply scarcities in the short term, i.e., well be-
fore 2020. Thus, the purpose of this analysis is to address the sub-
ject by estimating conventional oil and gas supply cost curves for
the region.
Continued demand for oil- and gas-based energy services
throughout the 21st century is expected to induce technological
change that could lower future production cost levels. On the other
hand, environmental considerations could adversely affect oil and
gas production costs, especially if unconventional resources are
considered. Production of these resources typically have larger
environmental impacts, including increased greenhouse gases
emitted during the extraction and upgrading processes. Emissions
penalties could change the shapes of the supply curves, as uncon-
ventional oil and gas would become relatively more expensive. The
implementation of carbon capture and storage (CCS) at extraction
sites could also increase cost, though presumably the cost would
be lower than that resulting from the imposition of emissions pen-
alties. Meanwhile, enhanced oil and gas recovery with CO
2
injec-
tion would be potentially less expensive due to emissions offsets
based on sequestered CO
2
.
From an economic point of view, relative prices will determine
the dominance of oil and natural gas versus other fuels [3]. To give
an example, a significant tax on carbon would increase the relative
price of coal versus gas. This would lead to investment and techno-
logical advancement across the gas industry and thus induce sub-
stitution from coal to gas by decreasing the relative price of gas.
The approach for developing the conventional supply cost
curves in this study is based on [4] and begins by using European
oil (including natural gas liquids – NGL) and gas volumes esti-
mated by the Variable Shape Distribution (VSD) model [5]. The
oil and gas volumes are distributed into several classes based on
resource quality. Every class is then assigned lower and upper
bounds of production costs, resulting in supply cost curves. For
both oil and gas, two curves are developed – one is based on cur-
rent technology and the other on technology performance assumed
for 2030.
2. Paradigm choice
There are two common paradigms for assessing non-renewable
resources: the fixed stock versus opportunity cost paradigms. The
former observes that the earth is finite; therefore, the supply of
any commodity, such as oil or gas, must also be finite. Demand,
on the other hand, is variable. Consequently, it is only a matter
of time before demand consumes all of the fixed stock. Although
the fixed stock paradigm seems logical, economists often argue
that the methodology is less useful than the opportunity cost par-
adigm [6]. The latter uses measures—such as prices, production
0306-2619/$ - see front matter Ó 2012 Elsevier Ltd. All rights reserved.
doi:10.1016/j.apenergy.2012.02.069
⇑
Corresponding author. Tel.: +61 8 9266 9137.
E-mail addresses: r.aguilera@curtin.edu.au (R.F. Aguilera), r.ripple@curtin.edu.au
(R.D. Ripple).
1
Tel.: +61 8 9266 3935.
Applied Energy 96 (2012) 387–392
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Applied Energy
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