Oil Production In The GOM -- What's At Stake?

In the aftermath of the disastrous oil leak in the Gulf of Mexico (GOM), it has become clear that very few people understand what's at stake in terms of America's oil production. Let's look at the data.

• U.S. crude oil production averaged 5.31 million barrels-per-day in 2009 (EIA data)
• GOM production was 1.54 million barrels-per-day in 2009, which was about 29% of overall production

GOM past and projected oil production from the Mineral Management Service (MMS), with a committed scenario and a "full potential" scenario fantasy (striped bars). Red stars mark years when hurricanes affected production. 2009 production was significantly understated (EIA data) in this May, 2009 MMS report, partly because there were no significant weather-related disruptions.

The oil & gas industry's deepwater projection shows a peak in GOM production in 2011 folllowed by a steep decline according to the MMS deepwater projection. This is the committed scenario. The full potential fantasy sits atop the committed scenario.

The Full Potential Scenario adds potential oil and gas production from industry-announced deepwater discoveries and undiscovered resources in all water depths. This part of the production forecast is more speculative than the committed scenario...

The full potential case contains dubious assumptions like these—

• During the first year of production, each project is assumed to produce at half its peak rate.

• Projects with discovered resource volumes over 200 MMBOE (million barrels of oil equivalent) are assumed to reach peak production in their second year, sustain that peak rate for a total of 4 years, then decline at an effective annual 12 percent rate from that time forward.

Here is the production profile for BP's Thunder Horse, which had a stated capacity of 250,000 barrels-per-day.

This production profile is characteristic for (ultra-) deepwater fields. From industry consultant Glenn Morton, here

Thunder Horse, which had a higher stated production capacity and recoverable reserves (575 MMBOE) than any envisioned future project, managed to keep its peak production rate for about one week in April, 2009 according to this MMS data. Perhaps it is not realistic to assume that projects with discovered resource volumes over 200 MMBOE  are assumed to reach peak production in their second year and sustain that peak rate for a total of 4 years.

And then there are hurricanes. The last two years have been very quiet—a little too quiet. Bloomberg recently reported the following—

May 4 (Bloomberg) -- The 2010 Atlantic hurricane season may rival some of the worst in history as meteorological conditions mirror 2005, the record-breaking year that spawned New Orleans- wrecking Katrina, forecasters say.

The El Nino warming in the Pacific is fading and rain is keeping dust down in Africa, cutting off two phenomena that help retard Atlantic hurricane formation.

Perhaps most significantly, sea temperatures from the Cape Verde Islands to the Caribbean, where the storms usually develop, are above normal and reaching records in some areas.

“We have only seen [these conditions] in three previous seasons, 2005, 1958 and 1969, and all three of those years had five major hurricanes,” said Jeff Masters, co-founder of Weather Underground Inc. “I am definitely thinking that this is going to be a severe hurricane season.”

Uhmmm.... Imagine that.

It might have occurred to Americans that our need to drill in ever-deeper water and for miles beneath the seafloor was a warning signal that things were not right with the oil supply. It certainly was not a cause for celebration, but in one glowing article after another, the media has told Americans that technology is saving the day. Lately the tone has changed a bit, but Cornucopians like Dan Yergin are still selling the usual technological optimism—

BP Finds 'Giant' Oil Source Deep Under Gulf of Mexico
Extreme Conditions Mean It Will Be Years Until Production

By Steven Mufson
Washington Post Staff Writer
Thursday, September 3, 2009

BP said Wednesday that it made a "giant" oil discovery in the Gulf of Mexico, and analysts said that the find deep below the sea floor raised hopes that further exploration in the region could help sustain U.S. offshore oil production.

The discovery, known as Tiber, was made 250 miles southeast of Houston and was "in the same league" as other big fields BP has discovered in the Gulf of Mexico, BP spokesman Daren Beaudo said. The company would not make any estimates on the amount of oil its latest find could yield, but the biggest platform in those other fields, Thunder Horse, is producing as much as 300,000 barrels a day...

[My note: Thunder Horse producing as much as 300,000 barrels-per-day — NOT!]

Bob MacKnight, a senior consultant with the Washington consulting firm PFC Energy, cautioned that while the big new discoveries were welcome news, they might not boost overall U.S. oil output because other Gulf of Mexico fields are expected to decline. "We really need this," he said. "After 2012, given current developments, we will see production start to decline. Without continued discoveries ... that decline could be steep."

Daniel Yergin, chairman of Cambridge Energy Research Associates, said that the discovery "demonstrates how technology continues to expand the horizon of the Gulf of Mexico."

It is unknown what the policy fallout will be from the ongoing oil leak in the Gulf of Mexico. Whatever it turns out to be, it will very likely make a bad situation worse. For years, people like Yergin have argued that technological progress in extreme locations like the deepwater GOM would save us from ourselves. It didn't happen, and it isn't going to happen.

Perhaps this oil spill will spur some much-needed reflection on where we stand... I'll believe it when I see it.