Question

EOG, a Texas-based producer of oil and gas, is called the "Apple of oil" because of the company's history of developing innovative methods to extract energy from shale rock. Using one of EOG's innovations, called iSteer, the company can navigate through thousands of feet of rock with a drill bit that allows for greater recovery oil and gas than methods the company previously used. Briefly explain why economists would consider EOG's use of iSteer an example of technological change.

Short answer

Economists would consider EOG's use of iSteer an example of technological change because it introduces a new and more efficient method of production. This innovative technique enhances the company's oil and gas extraction process, thus allowing the firm to generate the same output with fewer inputs or more output with the same amount of inputs, which is the essence of technological change in economic terms.

Step-by-step solution

Understanding technological change

Technological change, in economics terms, involves the implementation of better and more efficient ways of doing things. It usually involves the introduction of technologies which are new to the firm and which changes the existing process of production.

Assessing iSteer

EOG developed iSteer, an innovative technique to extract energy from shale rock. By enabling navigation through thousands of feet of rock, it allows for a greater recovery of oil and gas than previous methods, hence improving the efficiency of their extraction process.

Connecting iSteer to technological change

EOG's use of iSteer represents technological change because it's a new and more efficient method that's changing the way the company extracts oil and gas. This change leads to improved production process and higher recovery rates. For economists, improvements that enable a firm to produce more output from the same amount of inputs, or generate the same output with fewer inputs, represents technological change.

Key concepts

Innovative Extraction Methods

Technological advancements in the field of resource extraction are pivotal for industries that rely on raw materials, such as the oil and gas sector. Innovative extraction methods, like EOG's iSteer technology, serve as prime examples of these advances. iSteer allows drilling equipment to navigate through complex geological formations accurately, enhancing the ability to access oil and gas reserves that were previously either inaccessible or not economically viable to extract.

From an economist's perspective, such innovations are classic indications of technological change. It's not merely about inventing something new; it's about fundamentally transforming the extraction process to be more efficient and effective. By optimizing the drilling path, EOG can maximize oil and gas recovery, reduce waste, and minimize environmental impact. This increased efficiency lowers the cost of production per unit, thus potentially leading to lower prices for consumers and higher profits for producers.

Efficiency in Production

Efficiency in production is a key objective for any economic entity striving to make the best possible use of its resources. Enhanced efficiency often leads to a stronger competitive position in the market and greater sustainability of operations. The implementation of technologies like iSteer by EOG reflects a dedicated effort to bolster efficiency in production.

Within economics, there's a concept called 'productive efficiency,' which occurs when a firm is producing at the lowest point on its average cost curve. By reducing downtime, optimizing resource allocation, and improving output quality, innovative technologies like iSteer contribute to the firm's ability to achieve productive efficiency. Furthermore, as these improved methods become standard practice, they set new benchmarks for performance within the industry, compelling other firms to innovate or fall behind.

Energy Sector Technology

The energy sector is particularly influenced by technological change as it continually evolves to meet the growing demands for energy in a sustainable and environmentally friendly manner. The development of technology like iSteer demonstrates the sector's commitment to groundbreaking solutions to old problems.

In energy production, the integration of better technology can lead to significant decreases in greenhouse gas emissions, reductions in water usage, and a decrease in the overall ecological footprint of extraction and production. Beyond extraction, technology also revolutionizes energy storage, distribution, and consumption, further illustrating the comprehensive impact of technological advancements on the sector. Energy companies that fail to adapt to these technological changes may become less competitive globally, as these new technologies can significantly influence costs, efficiency, and the ability to comply with regulatory standards.