Opinion

The Great Debate

Too much at stake for long drilling moratorium

June 16, 2010

Deepwater oil production in the Gulf of Mexico accounted for 23 percent of all oil produced in the United States last year, and 7 percent of all crude consumed in the nation’s refineries, according to the Energy Information Administration’s “Annual Energy Outlook.”

Offshore production has risen 770,000 barrels per day since 1990, helping offset declining output of almost 2.9 million barrels elsewhere. In the Gulf, deepwater has been the fastest growing segment in recent years, accounting for more than three-quarters of all production last year.

Before the blowout of BP’s Macondo well, and the subsequent drilling moratorium, EIA forecast deepwater output would rise another 35 percent to hit 1.67 million barrels per day in 2015, up from 1.23 million bpd in 2009. By then, Gulf deepwater output would account for almost 29 percent of all oil produced in the United States.

Some analysts have suggested Macondo puts a large share of this forecast production in jeopardy, tightening the forward supply picture significantly. The International Energy Agency (IEA) has labelled it a potential game changer. President Barack Obama has seized on the spill to urge the country to “embrace a clean energy future.”

In practice, though, deepwater production is so important the United States has no alternative to continue exploration and raising output if the country is to have any real prospect of meeting predicted energy needs at acceptable prices without jeopardising energy security by raising imports even further.

EIA predicts slower growth in liquid fuel consumption over the coming two decades mostly as a result of increased energy efficiency. Gasoline demand may even have peaked, at least the component derived from petroleum, as a result of increased ethanol blending under the Renewable Fuels Standard (RFS).

But efficiency improvements, as well as biofuels, and other renewable, are unlikely to completely meet all future needs on their own.

Pressure to resume drilling new wells, with additional safeguards, will therefore be immense. There is no practical alternative. Any moratorium is set to be relatively short, at least for operators other than BP itself.

Comments
5 comments so far | RSS Comments RSS

Kemp- are you suppose to offer any kind of unbiased reporting given your background in Sempra? A company that has largely benefited from the deregulation of the energy market (for better or worse- but mostly for worse). A company that is currently selling off a large portion of its business to JP Morgan- hmmm, where have I heard that name before? Oh yeah, that other recent debacle!

Reuters- isn’t this more like an industry insider piece lacking any kind of real objective reporting? One that a true reporting agency would rather offer with complete & factual numbers, both pros and cons, which promotes unbiased reporting with a complete overview.

Instead what we have here is a piece that could have been written by a BP exec trying to make the case for looking the other way while I rape & pillage the neighborhood- cause you really need that next hit of crack- don’t ya?!

Maybe a new name for Reuters could be “Reuters International Energy Expo Today” where Expo is really codename for Exploitation- nudge nudge, wink wink…

Posted by mynamehear2 | Report as abusive
 

We have a “stupid is as stupid does” mentality about oil here – America needs to pay more for the privelege of using oil and gas prices should reflect the true cost of drilling. Ration it to discourage waste. Raise prices and tax it. Increase fuel standards.

Posted by 5280hi | Report as abusive
 

The share of US production or consumption comprised of US deepwater oil borders on irrelevant. Oil is a global commodity. Declines or changes in US production are relevant only if you expect the government to somehow force US oil to stay in the US. If you are promoting some sort of “energy independence” view – that we need to be able to live on our oil to reduce dependence on “unreliable” foreign oil, you are fantasizing.

The relevant question is the impact of the moratorium on global production: that is what determines the effect of the moratorium on the global price. And the answer is that it will have no effect. At 1.67 million bpd, deepwater oil would contribute less than 2% of world production. That, not your 27% of this or 7% of that, is the only meaningful figure for considering whether the moratorium is a significant event in oil markets. Furthermore, the impact will occur several years down the road, given the lag from drilling to production.

Please consider your opinions more deeply before spewing them forth like an uncapped well.

Posted by JohnMetz | Report as abusive
 

$20 billion is chump change for BP. We just launched a facebook competitor at story+burn dotcom

Posted by GreatRead | Report as abusive
 

Hi John

Thanks very much for your thoughtful comment about my column “Too much at stake for long drilling moratorium”.

As you say the relevant (global) metric is Gulf deepwater production as a percentage of world output. I’ve written about this in a previous column “BP’s crisis is no Three Mile Island” published last week, where I described the global supply impact as “marginal”.

The full story is on the web here: http://blogs.reuters.com/great-debate/20 10/06/11/bps-crisis-is-no-three-mile-isl and/ or

Or I have reproduced it below.

For the United States, though, there is, rightly or wrongly, a discussion about cutting dependence on imported oil barrels. Yes I know there is a difference between physical and price security. But in terms of the political debate, physical security matters, as I am sure you appreciate.

In that respect, I don’t see a long-term moratorium on deepwater drilling in the U.S. Gulf, let alone in other countries such as Brazil. Simply put the industry has invested too much, and both the United States and other countries need the marginal barrels too much, to end this.

When the passions have died down, the solution will be continued deepwater exploration with enhanced safeguards to ensure a blowout like Macondo does not happen again. Will other things go wrong in future? Other types of accidents? Yes, probably. No type of engineering is perfect. But at least we can learn the lessons from Macondo and try to do better in future.

Thanks again for your thoughtful reply

John

Posted by JKEMP | Report as abusive
 

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