Scraping the Barrel… 20 July 2012

In the cut throat business of oil extraction, oilfield services (OFS) companies are becoming increasingly indispensable, The Economist writes in a story that will tickle your inner oil geek. Oil majors like ExxonMobil and BP outsourced mundane drilling chores to technical expert OFS firms in the 1980s, but now, as oil is found in ever harder-to-reach depths of the earth’s crust, demand for the snazzy technology and inventive drilling techniques pioneered by OFS firms has never been higher. It’s too early to bid Exxon and BP adieu – but with production from mature oilfields falling and global demand for the black stuff rising, the industry’s dependence on OFS firms is only likely to increase.

This one’s for you, petroleum economics buffs. A Reuters analysis illustrates how the shale oil boom in the United States has transformed the global refining market by initiating a massive influx of light, sweet, high quality oil. Over the last decade, oil companies have invested as much as $100 billion in refineries capable of processing just the opposite — heavy, sulfurous oil that is difficult to turn into fuel. Light oil’s increase in supplies has led its value to collapse, and the profits from equipment to upgrade heavy crude have fallen in turn. With average profit margins from the most expensive processing plants predicted to fall by 30 to 40 percent over the next five years, oil companies will need to overhaul their refining capacity plans.

The island of Lamu, off the Kenyan coast, is a cultural and ecological treasure and a lynchpin of Indian Ocean commerce since at least the 9th century. It is also the proposed site of a new mega-port and oil transport corridor the Kenyan government hopes can propel the Kenyan economy to unseen heights. The Lamu port plans have been shrouded in secrecy ever since the government began its search for capital (for which, you guessed it, China is rumored to be providing support). Now, a coalition of local civil society organizations is taking the government to court to pressure it into providing an environmental impact assessment by independent experts and consultations with the community. Whether and when the government will open itself to such scrutiny is less clear.

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