|Transocean’s Discoverer Deep Seas holds the world record for deep-water drilling. In 2003 it drilled a well in the Gulf of Mexico while operating in water 10,011 feet deep. (Brian Gauvin)|
The Gulf of Mexico is making a comeback as a source of gas and oil, thanks to deep-water projects.
“Deep-water production is what is saving the Gulf of Mexico,” said Lars Herbst, acting regional director of the U.S. Minerals Management Service.
The Gulf has long been among the most important sources of hydrocarbons for the U.S. market. However, in recent years the inshore fields have begun to decline.
“As a matter of fact, oil and gas production has been declining on the shelf (wells in less than 1,000 feet of water) for the past several years,” said Herbst.
MMS forecasts show oil production from inshore areas falling by almost half, from 329,000 barrels of oil per day in 2007 to 182,000 barrels per day by 2016. Gas production from the shelf is expected to decline at a similar rate, from 4 billion cubic feet per day in 2007 to 2.7 billion cubic feet per day in 2016.
Thanks to deep-water projects, overall production in the Gulf is expected to climb significantly in the next few years. The MMS expects oil production to reach 2.1 million barrels per day within five years. That would represent an increase of almost a third over the 1.6 million barrels a day produced in 2000.
The trends with natural gas are not as dramatic but still encouraging. From a high of 14 billion cubic feet per day in the 1990s, gas production in the Gulf dipped to 9 billion cubic feet per day in 2003, but should recover to 11 billion cubic feet per day by 2008. While forecasts vary, many analysts think a return to 14 billion cubic feet of gas per day is possible by the end of this decade, again thanks to deep-water technology and exploration.
|A jack-up rig viewed through the pilothouse of an OSV in a shallow section of the Gulf. Jack-up rigs generally are limited to operating in depths of no more than 400 feet. Courtesy Transocean Inc. (Brian Gauvin)|
So the real story in the Gulf is the recent dramatic growth in deep-water reserves and production. In 2006, the James K. Dodson Co. reported deep-water wells accounted for 73 percent of the oil and 38 percent of the natural gas produced in the Gulf.
According to the energy consulting firm Wood Mackenzie, there has been a string of deep-water Gulf successes in 2006 and 2007. (15 discoveries and 1.5 billion barrels of reserves suggest that this dramatic increase is only in a preliminary stage. By comparison there were only four such discoveries in 1995 and eight in 2000.)
Last year deep-water discoveries totaled 12 projects, each capable of supporting dozens of production wells. The discoveries were located in 2,330 to 7,600 feet of water.
The deep-water areas of the Gulf may have the most potential, but these supplies are much more expensive to find, recover and transport to shore. Nevertheless, the steady rise of oil prices over the past five years is providing the economic incentive to drill in this more costly environment.
“We estimate that currently there are 85.9 billion barrels of oil and 419.9 trillion cubic feet of natural gas that are technically recoverable from all federal offshore areas,” said Caryl Fagot of the New Orleans division of the MMS.
Those figures are from a study published in 2006. Three years earlier, MMS said there were 76.0 billion barrels of oil and 406.1 trillion cubic feet of gas technically recoverable. That means that the MMS estimates of recoverable oil reserves in the Gulf increased by 13 percent during the period, while estimates of gas reserves rose 3.4 percent.
“Our near-term energy future lies in the safe and effective production of offshore and natural gas development, with much of that being in deep water. No doubt our reserves will continue upward as several promising deep-water projects are in the drilling stage now,” Fagot said.
In 2005 the Gulf supplied 25 percent of all U.S. oil production and 16 percent of natural gas production. Impressive as these numbers are, some producers in the Gulf had begun to doubt its future. In the past five years, traditional players like Houston Exploration, Pioneer, Noble, Kerr-McGee and others began to shift out of the Gulf in search of more promising places.
These days, the Gulf has regained some of its allure. Total capital expenditures in the Gulf for U.S. oil companies in 2007 will hit about $75 billion, a modest 6 percent increase over the previous year, according to Petroleum Data Service.
|Paula Kay, a 170-foot crew boat operated by Diamond Services out of Morgan City, La. Powered by waterjets, the vessel can do 28 knots with a load of 64 passengers and cargo. (Brian Gauvin)|
Some companies are placing very large bets on the Gulf’s potential. Industry giant Chevron increased its exploration and production budget to $19.6 billion, a 20 percent increase over the previous year’s budget and double the budget of just four years ago.
It takes a huge investment to bring oil and gas to the surface in deep water. For example, the Independence Hub, a permanently anchored platform in Mississippi Canyon Block 920, is about ready to begin production in a water depth of 7,920 feet. The project cost $385 million to develop.
Independence Hub functions as a “host facility.” Up to nine recently drilled wells will send their oil and gas to this one platform for processing and then to shore via a pipeline.
It is the deepest offshore platform ever installed, although individual wells still in the development stage exceed 10,000 feet in depth. Independence Hub will be able to produce 1 billion cubic feet of natural gas a day. This project by itself will result in a 10-percent increase in the amount of natural gas currently being delivered from the Gulf.
“The installation of the Independence Hub marks a major milestone in one of the most significant offshore projects ever developed,” said Robert G. Phillips, president and chief executive officer of Enterprise Products Partners, owners of the Hub.
The anchor handling tug Harvey War Horse towing the rig Noble Amos Runner to block 768, Green Canyon, in the Gulf, where the rig worked in 5,000 feet of water. The view is from the tug’s deck. (Brian Gauvin)
In addition to the Independence Hub, the Brazilian oil company Petrobras has approval from MMS to develop the lower Tertiary reserves in about 8,250 feet of water using a floating production, storage and offloading vessel. This will be the first FPSO in the Gulf, and it will be working about 180 miles off the coast of Louisiana.
Despite the deep-water successes, serious and significant technical challenges abound. The startup of the Thunder Horse platform, which will exploit the largest deep-water discovery to date, has been plagued with weather and technical problems and has been delayed to mid-2008. BP, majority owner of the platform, decided to rebuild all the seafloor production lines due to corrosion.
The $1 billion semi-submersible platform, with capacity to produce 250,000 barrels of oil and 200 million cubic feet of natural gas a day, was originally scheduled to begin producing oil in mid-2005, but damage from Hurricane Dennis and the failure of the sub-sea manifold in July 2006 have pushed production back three years.
Despite the setbacks caused by severe weather and equipment failures, the industry has made significant investments in this part of the Gulf based on the seismic evidence that the oil and gas are there. The technology to recover these deep-water hydrocarbons is in place, but is being fine-tuned almost daily for greater cost efficiency.