As oil prices become increasingly volatile, the adoption of cost-reducing technology will be the key by which energy companies keep their revenues steady, according to "Global Oil Trends 2002" by Cambridge Energy Research Associates (CERA) and Sun Microsystems. Oil prices are projected to average $20 a barrel in 2002, compared with approximately $26 in 2001, CERA president Joseph Stanislaw said. Though OPEC is trying hard to manage the price, success is very difficult. "Heading into 2002, OPEC faces the challenge of chasing a moving target-world oil-demand growth that is collapsing so fast that it is tough to know where to put production levels," the report indicates. While commodity prices may be impossible to control, companies do have the power to decrease their costs, both upstream and downstream. Upstream, U.S. companies in 1981 spent an average of $32 (in inflation-adjusted dollars) to find and develop a barrel of oil. Inspired by the price collapse of the mid-1980s, companies have worked hard to cut those costs, but more can be done, the study's authors say. "Upstream costs in non-OPEC countries are expected to fall an average 3% per year to 2010-from almost $9 per barrel to little more than $7 (in inflation-adjusted terms)," says Stanislaw. "Cost reductions will occur fastest in the deepwater offshore, at an average of 4% per year." Downstream, variable refining and marketing costs in the U.S. were about $13 per barrel in 1981, and net margins were about $1 per barrel. In 2000, variable costs had fallen to about $5 per barrel, but because these savings were passed through to the consumer, net margins were still about $1 per barrel. As a result, the downstream industry has been under constant pressure to continue to reduce production costs. Looking ahead, improving data and knowledge management are important areas of focus, says Larry Rice, manager for energy at Sun Microsystems in Houston. "How do we take data and put it in a perspective that people can view and use?" he asks. The reorganization of upstream companies during the years-from functional silos into asset teams-has hindered the quest to improve efficiency, the report says: "There has been a reduction in the sharing of experiences, of lessons learned and of functional insights across team boundaries. Some firms have further eroded knowledge transfer by greatly reducing or eliminating centralized technical services groups. When this happens, the experts residing in these groups are typically dispersed throughout the organization." -Jodi Wetuski

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