This video was made possible by Audible. Get any audiobook for free by going to audible.com/Wendover. 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 liters—is 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 years—they’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 destinations—happens
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 supplies—both 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 dollars—nearly 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 barrel—artificially 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,
though—onshore extraction is hardly better than offshore—but 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 texting “wendover” to 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.
Does anyone know how to determine what the background music is?
This was too big of topic to cover in one video. He should have gone more in depth in one of the many facets of oil rigs. Didn't have the random Wendover facts I have come to enjoy.