Tochukwu Akobi: Technology-Driven?

May 01, 2016
Tochukwu Akobi: Technology-Driven?
MIT graduate student Tochukwu "Tox" Akobi investigates the impact of technological innovation on the price of oil

As the world strives for a low‑carbon future, the search is on for fuels that are both emissions‑free and cost‑competitive with fossil fuels. One way to estimate how low alternative fuels must be priced to go head‑to‑head with fossil fuels is to run the Joint Program’s Economic Projection and Policy Analysis (EPPA) model, which estimates the evolving costs of coal, oil and natural gas. By default, EPPA projects a long‑term rise in the price of oil as producers gradually exhaust low‑cost extraction opportunities and increasingly turn to higher‑cost resources. This suggests that it’s only a matter of time before zero‑emissions fuels represent a better bargain. Just how accurate is this assessment?

With the exception of 2007–2008, the price of oil rose steadily between 2000 and 2014, but drastic reductions followed. The main drivers of this steep decline may be a combination of geopolitics, increased production of unconventional oil resources such as shale and tar sands, a faster rate of improvement in oil production technology, and other factors. One hypothesis is that technological advances—by enabling access to more reserves, reducing operating costs and increasing production volumes per investment dollar—have played a critical role in driving down oil prices, but it’s unclear how fast the technology has been improving over the years.

Enter MIT graduate student and BP Fellow Tochukwu (Tox) Akobi, who since September has been systematically investigating that question as a Joint Program research assistant.

“I’m trying to define a relationship between technological improvement, capital investment and the price of oil, to see if this relationship can be used to inform the EPPA model,” says Akobi, whose work is funded by BP through the MIT Energy Initiative. His ultimate goal is to estimate the overall annual rate of technological improvement among leading oil companies, and incorporate that value in the EPPA model so as to better represent oil extraction costs and depletion rates in the coming decades.

Toward that end, he’s analyzing data in annual reports and other public records—primarily over the past 15 years, but in some cases since the 1970s—from about a dozen leading oil and gas companies in order to infer the rate of technological improvement across the industry. Such improvement can be measured by evaluating how quickly these companies have upgraded their capability to extract more barrels of oil per invested dollar. In addition, Akobi is aggregating this data at the country level, with a focus on the U.S. and Canada. Finally, he is estimating the impact of unconventional oil production on U.S. oil prices by determining the number of active oil rigs in the U.S. that extract oil from unconventional sources.

Through this three‑pronged approach, Akobi aims to uncover insights into the key drivers of technological improvement and how they influence price, and share those insights in his master’s thesis.

“Tox has done a tremendous job of getting all the data—capital, number of workers, cost of production, etc.—from a dozen of the major oil companies,” says Joint Program Deputy Director Sergey Paltsev, who is advising Akobi on the project. “His historically‑based analysis should significantly improve our understanding of current fossil fuel price dynamics.” Once Akobi determines a range for the annual rate of technological improvement, more rigorous research will be needed to see how it can be incorporated in EPPA’s projections of the future energy mix.

By quantifying the oil industry’s rate of technological improvement and the key drivers behind it, Akobi’s research may also help industry leaders to optimize the amounts and timing of capital investments.

“Using this analysis, they might better determine where the current balance lies between productivity and profitability,” he explains, “so that every dollar spent produces a reasonable return on investment.”

Akobi’s preparation for this work came both from the classroom—MIT courses in energy economics and policy sharpened his understanding of the factors that drive fossil fuel prices—and several years of experience in the oil and gas industry.

After earning a bachelor’s degree in metallurgical engineering with honors from Ahmadu Bello University in his native Nigeria, Akobi served as a management consultant with Hay Group in South Africa and then returned to Nigeria to work for ExxonMobil over the next six years. His duties included field operations, project management, strategic planning and capital investment analysis. A student in MIT’s System Design & Management (SDM) program since Fall 2014, Akobi has pursued a full plate of extracurricular activities. He chaired the SDM Student Leadership Council, helped organize the 2015 MIT Global Startup Workshop in Guatemala, and serves as a member of MIT’s Energy Club, Society of Energy Fellows, Sloan Africa Business Club and Product Management Club. While balancing multiple academic and extracurricular commitments, Akobi found time to spearhead and implement a new approach to gauge the rate of technology improvement in the oil industry.

“In five months, I’ve been able to develop a method of pursuing this research in a space where this kind of analysis hasn’t been done before at the global industry level,” says Akobi, who, upon completing a master’s degree in engineering and management in June, plans to work as a consultant with the Boston Consulting Group in Houston.

Reflecting on his time in MIT and with the Joint Program, he adds, “It’s a privilege to be part of an organization that’s working at the frontier of research that feeds directly into the global conversation.”