Optimal dynamic production from a large oil field in Saudi Arabia

We model the economically optimal dynamic oil production decisions for a stylized oilfield resembling the largest developed field in Saudi Arabia, Ghawar, paying particular attention to the engineering aspects of oil production. Specifically, we begin with a fluid dynamics model composed of differen...

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Bibliographic Details
Published in:Empirical economics 2009, Vol.37 (1), p.153-184
Main Authors: Gao, Weiyu, Hartley, Peter R., Sickles, Robin C.
Format: Article
Language:English
Subjects:
Alternative energy
Costs
Crude oil prices
Dynamic programming
Econometrics
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Engineering
Finance
Government spending
Insurance
Management
Oil recovery
Oil reserves
Optimization
Original Paper
Petroleum production
Politics
Production capacity
Production functions
Statistics for Business
Studies
Water flooding
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Summary:We model the economically optimal dynamic oil production decisions for a stylized oilfield resembling the largest developed field in Saudi Arabia, Ghawar, paying particular attention to the engineering aspects of oil production. Specifically, we begin with a fluid dynamics model composed of differential equations describing the dynamics of fluid flow as a function of fluid pressure, formation characteristics, water injection, new wells, and how these parameters change as oil extraction occurs. We then link this physical description of the field to an intertemporal optimizing economic model. The cost and revenue functions are based on data from a number of sources. We use tensor splines to approximate the value function. The optimal solution depends on exogenous variables, such as the discount rate or the timing of breakthroughs in the cost of alternative energy sources, which are uncertain. We examine solutions under a number of scenarios to account for these uncertainties.
ISSN:0377-7332
1435-8921
DOI:10.1007/s00181-008-0227-9