Market Changers

Unless you’ve been sleeping for the last half year, you’ve seen plenty of coverage of unconventional gas – especially North American shale gas.

We’ve already seen how these supplies have re-shaped the gas market. In the US, shale gas reserves have given rise to some of the most believable discussions about possible energy independence and cutting of the country’s imports. Closer to home, we’ve already seen one result of the change unconventional gas has had on the market – the impact on the discussion about how to develop the Barents Sea giant Shtokman.

As we prepared this issue for press, we heard an echo from last year’s presidential election in the US – “Drill, baby, drill!” But this time around, rather than Republican voices, it was President Barack Obama who was calling for expanding US offshore oil and gas activities. To begin with, the President called for opening areas off the US southeast Atlantic coast – as well as expanding areas in the Gulf of Mexico – for exploration and production.

The following day, the US President announced his plans to beef up the fuel mileage standards (which haven’t been significantly changed since the 1970s). The goal, said the President is to, “…lead by example and practice what we preach: cutting waste, saving energy, and reducing our reliance on foreign oil.”

Of note here, is that President Obama realises that hydrocarbons will remain a big part of the near-term energy mix, and that it will be some time before realistic, affordable alternatives are available.

We’ll leave the political analysis to others, but we can say that – over time – increasing US domestic offshore production will, without a doubt, have a positive effect on the industry.

To start, much has been made of the potential of offshore reserves in the US. By some estimates, there are tens of billions of barrels “out there”. But most of the numbers are derived from data that was collected in the 1970s. (Interestingly, the collection of this data parallels the setting of US fuel mileage standards that were set in response to the oil crises of the mid 70s.)

So before we see any drilling, thorough, modern seismic surveys must be made and interpreted. Add to that environmental impact studies and licensing rounds from different states (not to mention court challenges from the environmental lobby), and it could be a considerable amount of time before we hear of “first oil” from the US eastern seaboard.

If we look to activities already in place in the GoM, a good model for future US activity is the Chevron-Statoil-Total Tahiti platform, a little more than 300 kilometres south of New Orleans. Online for almost a year now, this deepwater (1,250 metres) platform boasts among its wells one at more than 8,000 metres.

The Tahiti Field was discovered in 2002, and is estimated to contain recoverable resources of between 400 to 500 million oil-equivalent barrels. That’s a 7-year span from discovery to first oil – something to keep in mind when considering the goal of reducing the US reliance on foreign oil.

But – and this is a big but – USD 2.7 billion was spent bringing the Tahiti Field online. Multiply this by any number of major new fields in US Atlantic (or expanded GoM) waters, and it’s easy to see that the industry will see a boom once activities commence.

For the last few years, we’ve followed the excitement over (and contracts for) offshore Brazil. Will it next new province be offshore Virginia, North/South Carolina, Georgia…?