The Long Run Impact of Technology Diffusion on Average Cost in Upstream Oil Industry; Case Stud of Iran

Literature review related to nonrenewable resources shows that technological improvements have considerable effects on resource depletion and decreasing operational cost.  Therefore it is assumed that technology is the most important and influential variables in the production function and utilization cost of these resources. In this study, we assess the long term effect of technology diffusion on average cost in oil industry upstream activities. Desired variables in this research include: oil and gas production, upstream average cost, depletion effect and technology diffusion in the upstream sector. We use cointegration test results, using error vector correction model to study the long term relationship between variables for 1967 to 2017 time frame. Johansson test results show that there is a long term cointegrated relationship between variables of the model. Using instantaneous reaction functions, we calculate the effect of technology improvement on upstream cost reduction, oil production increase and increase of evacuation effect.  At the end, we use variance analysis, to calculate the share of each variable variation in changing average cost in each period. The highest variation value relates to the technology variable. The share of this variable has been ascending up to the 15th period of time. The long term adjustment coefficient for all variables is found to have the desired sign and be negative. In this model the technology coefficient is meaningless because the impact of technology compared to the exterior long term relationship parameters is weak.