The uncertainties related to long-term forecasts of oil prices impose significant financial risk on ventures of oil production. To minimize risk, oil companies are inclined to maximize profit over short-term horizons ranging from months to a few years. In contrast, conventional production optimization maximizes long-term profits over horizons that span more than a decade. To address this challenge, the oil literature has introduced short-term versus long-term optimization. Ideally, this problem is solved by a posteriori multi-objective optimization methods that generate an approximation to the Pareto front of optimal short-term and long-term trade-offs. However, such methods rely on a large number of reservoir simulations and scale poorly with the number of objectives subject to optimization. Consequently, the large-scale nature of production optimization severely limits applications to real-life scenarios. More practical alternatives include ad hoc hierarchical switching schemes. As a drawback, such methods lack robustness due to unclear convergence properties and do not naturally generalize to cases of more than two objectives. Also, as this paper shows, the hierarchical formulation may skew the balance between the objectives, leaving an unfulfilled potential to increase profits. To promote efficient and reliable short-term versus long-term optimization, this paper introduces a natural way to characterize desirable Pareto points and proposes a novel least squares (LS) method. Unlike hierarchical approaches, the method is guaranteed to converge to a Pareto optimal point. Also, the LS method is designed to properly balance multiple objectives, independently of Pareto front’s shape. As such, the method poses a practical alternative to a posteriori methods in situations where the frontier is intractable to generate.
- Short-term versus long-term optimization
- Multi-objective optimization
- Risk management
- Oil production
- Optimal control