How AI Can Help Lower Oil Prices and Extend Resources' Lifespan

On September 25, a report from the Nikkei highlighted the challenges facing crude oil futures in maintaining high prices. This struggle largely stems from a slowdown in global economic growth, raising concerns that oil demand may gradually decrease. Additionally, improvements in production efficiency among oil suppliers are curbing price increases. Artificial Intelligence (AI) plays a significant role in enhancing production efficiency. While the widespread adoption of AI consumes substantial electricity, it also helps reduce energy production costs.

As the world's largest oil producer, the United States is expected to reach a historic daily oil output of 13.25 million barrels this year. Although the number of oil drilling rigs peaked at the end of 2022 and has since declined to below 500, U.S. oil production is still on the rise due to increased efficiency. The U.S. Energy Information Administration noted that improvements in drilling and completion efficiency, along with technological advancements, contribute to rising productivity in the Permian Basin, the primary region for shale oil production.

AI has been vital in enhancing the precision of hydraulic fracturing, a method that uses high-pressure water to fracture shale and extract oil. It can also shorten the time needed for lateral drilling. U.S.-based Nabors Industries stated that integrating AI technologies into their operations has increased horizontal drilling rates by 36%. For example, in the Delaware Basin, drilling costs for each oil well have been reduced by $50,000 to $100,000. Predictive analytics powered by AI is helping maintain oil pipelines and other equipment, while AI excels in geological surveys and exploration. By effectively utilizing AI along with historical data, the probability of successful drilling has improved, reducing costs associated with multiple unsuccessful drilling attempts.

Goldman Sachs released a report in early September indicating that employing AI can cut the costs of developing new shale oil wells by approximately 30%. They anticipate a 25% increase in productivity, with long-term costs expected to decrease by $5 per barrel. Currently, West Texas Intermediate crude oil futures are priced around $70 per barrel, and the influence of AI may lead to significant changes in the sector.

Many American energy companies recognize the importance of AI. A survey conducted by the Federal Reserve Bank of Dallas in June revealed that over 60% of oil and gas companies using or planning to use AI in the next year expect improved production efficiency, while nearly half anticipate lower costs. The primary uses of AI include predictive analytics, automation, and geological and reservoir engineering.

Traditional oil producers in the Middle East are also turning their attention to AI. In March, the Abu Dhabi National Oil Company announced it had created $500 million in value across its supply chain using more than 30 AI tools. Saudi Aramco, the state-owned oil company, is actively investing in AI as well. Energy experts from the Middle East emphasize that reducing capital costs through AI can lead to more oil extraction.

Critics argue that the continued reliance on fossil fuels contradicts decarbonization goals. Acknowledging this concern, oil-producing nations stress the importance of mitigating environmental impacts. AI can play a role in this effort. One common sight in oilfields is the burning flames at the tops of stacks, a process known as "flaring," which eliminates associated natural gas during oil production. Saudi Aramco uses AI and big data for predictions and monitoring to minimize excess flaring, achieving a reduction of more than 50% since 2010.

American shale companies, historically sensitive to costs, have been at the forefront of adopting new technologies, which are gradually influencing the global oil production industry and enhancing efficiency. As AI emerges as a transformative force across the oil sector, improvements in productivity and reductions in costs may also benefit oil-importing countries. The future shaped by AI may even imply an extended longevity for oil in the global energy landscape.