Monday, September 11, 2006

More Perspective on Gulf of Mexico Oil Find

The discovery of oil further out in the Gulf of Mexico is good news but it does not justify some of the self-serving hoopla in the media and oil business. The proper way to look at the news is that it potentially gives us a small bump in oil reserves and perhaps it also gives us a little more time (no more than an extra year or two) to get our act together; it is not a license to waste time doing more of the same; after 30 years of letting our energy policy drift, it's time to ignore those who find it profitable or politically convenient to allow the drift to continue. Already, claims are being made that we have enough 'fossil fuels' to last a hundred years but this argument includes the dirtiest of all fossil fuels: coal. But many in the oil industry are saying enough is enough. It's time to look at the energy picture more realistically.

Dave Cohen of The Oil Drum provides some useful perspective on the oil find in the Gulf of Mexico (bold emphasis mine):
Fellow TOD contributor Bubba is co-author of this report. He is an industry insider. It seemed important for those of us concerned about peak oil to respond to the Jack-2 test well result and all the publicity it has spawned. I also had conversations about this piece with Byron King at Whiskey And Gunpowder.


For those who want to skip the details, here is a summary of our conclusions.

• Large estimated recoverable reserves (EUR) numbers have been quoted in the business and popular press—anywhere from 3 to 15 billion barrels (Gb). Many of these articles have given the public the misperception that all of these billions of barrels were demonstrated by and will shortly flow from the Jack discovery alone. This report is meant to enlighten TOD readers on the true significance of the Jack discovery, the Lower Tertiary play in general, and what can truly be expected from it.

The LTGOM play consists of a number of fields as shown in Figure 1 below. All of these fields have a EUR in the 350 million to 500 million-barrel range according to Rigzone and other unpublished sources. The production capacity of the various fields and the types of fluid they can deliver vary considerably. Aside from their great depth, the reservoirs and fluids present many challenges. Some of these fields will get produced, others will not. It is important for everyone to understand that the large EUR numbers quoted do not apply to any one field but rather represent the entire Lower Tertiary region.

• The Jack-2 well test indicated a flow of 6000 barrels per day. This one data point encourages further appraisal but does not guarantee flow rates that will justify the massive (billions of dollars) investment required to put the LTGOM into full-scale production. Whether the economics of commercial exploitation is favorable for the various fields remains an open question.

• Implementing development plans, where they exist, for these fields pushes the limits of deepwater technology. A myriad of questions exist about completion and production of the wells. Unanswered logistical concerns include securing rigs, transporting produced oil to market and what to do with associated natural gas.

• Realistically, initial production of some fields (eg. Great White and Cascade) may happen by 2009 or 2010 at the earliest. The other fields that do get developed, including Jack, will likely not achieve first production before the 2012 to 2014 period. Delays are likely given that many technical problems are being solved for the first time. Under most forecasted scenarios, production from the LTGOM will likely only offset declines in US production that will have occurred by then.


Regarding the big picture, one important question revolves around how people interpret these reserves estimates. Typically, there is a knee-jerk response that greets any large discovery because many, even some who should know better, believe that reserves and production flows are somehow equivalent. That is not the case. Another important question revolves around the use of extreme production measures in "final frontier" areas like the Walker Ridge deepwater. Rather than indicating continued abundance in oil supply, such measures may be viewed more accurately as indicating the great lengths oil producers must go to in order to find more oil to meet the world's insatiable demand. The "low-hanging fruit" is gone and so is the era of the cheap oil. Ultimately, this is the meaning of the Jack-2 test well and hopes for production from the Lower Tertiary of the Gulf of Mexico.

Here's the reality: the oil-based part of our energy supplies are increasingly hostage to declining reserves, world events, the energy needs of emerging economies, hurricanes and other factors. If we add in global warming, business as usual is simply something we cannot afford. We need to develop a wide-range of alternative energies and invest in the research necessary for realistic alternative energy scenarios. The oil and coal companies will continue to make money but from here on out our energy requirements need to be diversified. And it would be to our advantage to be the worldwide leader in alternative energy technology (that should include scalable technology and projects that truly meet the needs of third world countries).

One last thought: the United States has doubled its population in the last 57 years; if we double our population again in the next 57 years, the only way we can sustain our prosperous way of life with the fossil fuel resources now available in the world is to completely impoverish the rest of the world. That is a morally unsustainable position and if pursued would ultimately put the security of the United States at risk. It's time to accept that change is coming. And we need to start thinking of how to hand off a decent and sustainable legacy to our children and grandchildren.


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