What's new in production

	Vol. 226 No. 1
ROBERT E. SNYDER, EXECUTIVE ENGINEERING EDITOR

10-year oil/gas production increase in US Gulf. New incentives to encourage energy companies to explore and develop difficult-to-reach areas of the Gulf of Mexico will help boost peak oil production in the US Gulf by 43% and natural gas by 13% over the next decade, Assistant Secretary of the Interior for Land and Minerals Management Rebecca Watson announced recently.

“Energy companies are responding positively to new incentives offered under the President’s Energy Plan that allow them to tap into pockets of oil and gas in areas of the Gulf that otherwise would not be economical to produce,” Watson said at a November 15 news conference, where she released the Minerals Management Service’s first-ever 10-year energy projections for the Gulf.

Oil production in the Gulf will increase to a record 2 MMbopd by 2006, compared to the current rate of 1.5 MMbopd, and could reach 2.25 MMbopd by 2011, according to MMS projections.

Since 2001, the administration has continued incentive programs for deepwater areas of the Gulf and introduced new incentives for other areas. The most recent announced by Interior Secretary Gale Norton in January 2004, offers developers royalty relief to tap into pockets of gas deep under shallow waters that otherwise would be too costly and financially risky to attempt.

“The Gulf of Mexico delivers more oil and gas to the US market than any single domestic or foreign source, but many older, easier-to-reach fields have passed their peak. Exploration has shown more gas can be produced at deeper depths under existing shallow-water infrastructure; and oil can be produced at tremendous depths,” Watson said.

A rise in deepwater oil production is fueling this dramatic increase, and almost 80% of Gulf oil production in 2011 is expected to come from this resource-rich region. Watson said, “We expect our greatest oil production to come from the deepwater region of the Gulf. For gas, both deep water and the shallow-water deep shelf hold the most promise.”

MMS Gulf of Mexico Regional Director, Chris Oynes said, “We are now in the ninth year of sustained expansion of the deepwater frontier in the Gulf of Mexico. It appears likely that it will expand greatly over the next 10 years, as more than 100 development projects have begun production and new discoveries that have occurred in the last three years will likely be developed.”

MMS’ long-range projection of deepwater projects that industry has indicated they intend to pursue shows oil production in that region will drive the increase in the coming years. After these projects reach their production peaks, MMS believes the anticipated 2 MMbopd level can be maintained if operators commit to developing existing discoveries and continue to explore the deepwater frontier. In 2003, operators announced 13 discoveries in deep water and have announced another 10 through November 2004.

Gas production in the Gulf is expected to show some decline in the short term as old fields continue to decline, and then show an increase again as new wells in deep-shelf and deepwater areas come into production. Projections show that gas production will rebound beginning in 2008, and reach more than 13 Bcfd in 2011.

Gulf of Mexico gas production is slightly more than 12 Bcfd. MMS forecasts that total Gulf gas production levels will decrease slightly by 2007 to just over 11 Bcfd. However projections show that it will rebound in 2008 and reach the 13 Bcfd level in 2011. This year’s production estimate by MMS is based on a new methodology. In addition to surveying oil and gas companies, it analyzed recent deepwater discoveries and projected deepwater reserves. This enabled MMS to forecast Gulf production 10 years into the future instead of the previous standard five-year projection.

The 10-year production forecast is available in the new MMS publication Gulf of Mexico oil and gas production forecast: 2004 – 2013 (MMS OCS Report 2004-065). Additional information can be obtained at: http://www.gomr.mms.gov/homepg/offshore/deepwtr.html.

Major worldwide offshore contribution. When the entire world offshore arena is considered, the US Gulf takes on a smaller perspective, critical as it is to growing domestic US demand. A major study now offered by industry analysts Douglas-Westwood and using information from the Energyfiles database, titled The world offshore oil & gas forecast, predicts offshore oil/gas production will grow from 39 million barrels oil equivalent per day (MMboepd) in 2004, to 55 MMboepd by 2015. From providing around 34% of global oil production and 28% of global gas production in 2004, offshore oil/gas are forecast to reach 39% and 34%, respectively, by 2015.

The cost to explore, develop and operate offshore oil/gas fields, presently some $111 B per year, is forecast to total $1,440 B over the next decade. During this time, it is estimated that 200 Bboe will be produced. A most important trend is the move to deep waters. Nearly 25% of offshore oil will come from deep waters in 2015, compared to just 10% in 2004.

Regarding regional activity, offshore oil production began in North America in 1938, and since then, all regions have seen some expansion but most rapidly from Western Europe, mainly the North Sea. In 2004, Western Europe was providing 21% of all offshore oil, but is forecast to be providing just 11% by 2015. The Middle East, due to its large reserves, and Africa and Latin America, due to their deep waters, are forecast to be contributing the largest shares by 2015, with 21%, 19% and 18%, respectively.

Unlike oil, offshore gas output will continue to rise from both shallow and deep waters and in terms of oil equivalent, by 2015, gas is expected to be providing 40% of offshore volumes, with large increases from the Middle East, almost entirely attributable to the giant South Pars/ North field straddling the Iranian/ Qatari border. About 12% of global offshore gas will be coming from deep waters, compared to 7% in 2004. This growth in importance of gas, offshore gas in particular, will drive an unprecedented increase in expenditure on gas infrastructure, including pipelines, LNG plants, gas-to-liquid processing, tanker transport and loading/ unloading terminals.

The World Offshore Oil & Gas Forecast contains over 200 pages, 100 figures and 21 tables. For further information, see www.dw-1.com, or contact Lesley Lindsay-Watson at: tel. 1 44 1227 78099, fax. 1 44 1227 780880.