The Other Deepwater Drilling Problem


The Other Deepwater Drilling Problem

Just how crucial are those oil reserves in the Gulf of Mexico? Earlier today, Interior Secretary Ken Salazar was arguing that they're indispensable. While testifying before the Senate energy committee about the BP spill, he spent plenty of time copping to various regulatory missteps at his agency and promised that "heads will roll." But he also made a case for continued offshore drilling: "The reality is that we'll be depending on oil and gas in the transition to a new energy future. The Gulf of Mexico is where we know there are huge oil and gas resources."
This seems to be the Energy Information Administration's view, too. In its 2010 Annual Energy Outlook report, the agency predicted that U.S. oil imports would decline through 2035, in part because "production increases are expected from the deep waters of the Gulf of Mexico." The EIA then predicted that a whopping 70 percent of U.S. domestic oil would come from deepwater wells in the Gulf. Unless we do something drastic to reduce our demand for oil, Salazar's right: We'll be counting on these reserves.
(Also, to clarify a point that often gets lost, most of this crude will come from offshore reserves that companies already have access to but are just sitting on for the time being—about 34 billion barrels all told. Opening up the once-protected Outer Continental Shelf for further exploration—as the Obama administration has proposed—will make very little difference in the grand scheme of things. An EIA report from last year predicted that further expansion there would lower gas prices just three cents per gallon by 2020.)
But here's a follow-up question: What if the Gulf's reserves aren't quite as reliable as Salazar and the EIA are expecting? Glenn Morton, a consultant for oil exploration projects, has afascinating analysis of yet another famous BP deepwater platform, this one at the Thunder Horse field some 150 miles south of New Orleans, and finds a few surprises. Back in 1999, oil was first discovered in the area and the field was expected to hold at least one billion barrels—a major, major find. So BP spent some $5 billion building one of the largest and most sophisticated offshore platforms in the world, and after a few Hurricane Katrina-related setbacks, finally started pumping out crude in 2008.
Trouble was, as Morton shows, Thunder Horse hasn't reached anywhere near its expected potential. The platform was designed to produce 250,000 barrels of oil per day, but it never quite hit that level, and the field already appears to be in decline after just a few years. One billion barrels now looks quite unlikely. (The same goes for natural-gas production, which has never hit expected levels.) And, while this is just one field—albeit a major one—it does underscore the point that deepwater oil drilling is a tricky process, and not always as easy or predictable as thought.


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