The Wall Street Journal recently reported that Mark Hill, VP Sales, North America for Allegro Development (software firm) suggested that rapid reduction in the time and cost to drill and complete a well coupled with the increased volume of hydrocarbon recovered was the industry version of Moore’s Law.[i]
Coined by Gordon Moore (former Intel CEO) circa 1970, it suggests that computer processing power will double every two years.[ii] It was later revamped to read, “Double every 18 months.”[iii]
Not as well known, Moore’s Second Law, aka Rock’s Law indicates that while the cost of a unit of computing power falls, the capital cost to the semiconductor manufacturer increases exponentially. This stands to reason as these companies must invest in R&D, new facilities, workforce competencies, etc.[iv]
So if the energy industry is now subject to Moore’s Law what does that mean? If the (economic) marginal cost of drilling one foot or the marginal cost of producing one barrel of oil is falling in accordance with this model, then the capital required to enable these price points will be substantial.
The semiconductor industry survives and thrives as their “chips” are now everywhere. SEMI (global industry association) predicts that sales of semiconductor manufacturing equipment will increase from $31.8 billion (actual) in 2013 to $43.7 billion (forecast) in 2016.[v]
One would expect that those making these levels of capital expenditures in semiconductor production are aggressively managing costs. One way the sector manages costs is through automation. For example, production is highly automated including the visual inspection process.[vi]
In 1973 and 1979, OPEC as the global swing producer caused “oil shocks” as petroleum supplies were withheld from the market.[vii] Beginning in late 2014, that same consortium, led by Saudi Arabia does not appear to be having the same success.[viii]
The Mobility revolution is dramatically changing our world. Legacy semiconductor and software sector economic actors are changing and new entrants abound. These technologies are enabling the energy sector in new ways as well.Read More