Calculation Technology Diffusion in Upstream and It’s Effect on the Cost of Oil and Gas Production in Iran

In this study, the impact of technological improvement and depletion in upstream sector on the average cost of oil and gas production in Iran is studied in 1967-2017. For this purpose, global technology diffusion trend is calculated, so five variables that have had the most effect on global upstream is considered. Using acquired trend for technology and taking other related determinants into account, average cost function for oil and gas production is estimated. Results show that technology variable has been an important and impressive variable in decreasing average cost until mid-1980s.One of the reasons has been the alignment of technology diffusion trend in upstream with the world up to year 1989.  In other words, results show that there are no meaningful relation between cost alternation and the level of technology in upstream during 1989 to 2017 due to different reasons include: politics, war, sanctions, problems related to oil contracts and not enough attention to technology transfer. Entrance of world new technologies in Iran upstream sector has been limited and uncomplete and as a result EDP process has been slow and despite increasing real investment, average production cost has had increasing trend. Finally a simple simulation approach is considered and production cost function is compared in two scenarios. By comparing these two scenarios it is learned that the average cost in Iran could be considerably lower and efficiency could be much higher than now. JEL Classification:L71, Q49, D24, O33 Key words: technology diffusion ,depletion effect, upstream,cost production of oil and gas