Shutting Down Oil Wells Comes at Too High A Cost

Shutting Down Oil Wells Comes at Too High A Cost

May 29, 2020

As the coronavirus pandemic drags on and reopening procedures remain opaque, the oil industry continues to face difficult decisions. In the U.S. alone, oil consumption has plummeted from 18 to 5 million barrels per day. The longer demand stagnates, the greater the risk to oil companies becomes.

Shutting down wells remains an option to mitigate the decreased demand, but is something all oil companies want to avoid. To an ordinary person, shutting down a well probably seems like a logical, simple solution; however, when considering the cost of halting production, equipment repairs or replacements, and restart costs, the bill can reach millions of dollars.

For small to moderate-sized operations, such costly shutdowns are simply not financially feasible. In a post for the website Resilience, Philippe Gautier explains the problem.

The cost…cannot be justified at all for old wells reaching the end of their life, which often produce less than 10 barrels per day. These wells must continue producing or simply cease operating forever. Since there are so many of them, amounting to almost 11 per cent of US oil production, the loss could be significant for the industry.”

On top of being an expensive procedure, plugging wells can put the entire operation in jeopardy. There is no guarantee that when a well is restarted, it will return to its original flow rate.

Gauthier describes the process, “But an oil well is not a tap with a flow that can be adjusted as needed. Either it operates at full capacity or not at all. Valves are installed, but they’re only used during brief maintenance periods or emergency stops.”

With no secure and reliable restart process, it is no wonder oil companies remain reluctant to shut down wells.

The Trans-Alaska pipeline is another piece of infrastructure in jeopardy; if unable to maintain a flowrate of at least 400,000 barrels per day, the pipeline risks major damage and freezing. With the pipeline already operating at minimum capacity, any further drop in production could cripple the Alaskan oil industry.

On the surface, the decision facing oil companies seems simple, but as one digs deeper, a complicated dilemma emerges. With so much uncertainty, and with potentially global ramifications, these decisions could shape the future of the energy sector. For now, oil companies must hope a reopening economy accompanies resurgent demand, before it’s too late.