Friday 16 July 2010

Murky waters

The fallout from the fatal explosion on board the Deepwater Horizon drilling rig in the Gulf of Mexico on April 20th has not been limited to eleven lives lost and a sea full of oil. President Obama and Anglo-American oil giant BP are both fighting for their lives, and the future of deep water drilling itself is now seriously under question. Although a Louisiana court has ruled that Obama’s 6-month moratorium on offshore deep water drilling in the Gulf of Mexico is illegal, the White House is appealing the decision. Meanwhile the European Union is now placing deep water drilling in the North Sea under intense scrutiny, and Canada is looking again at the drilling planned of its eastern seaboard. In Brazil, the Petrobras flotation has been delayed. Even OPEC has weighed into the debate, with its secretary general Abdullah al-Badri pleading with EU energy ministers not to “jump to conclusions” and urging the US to “look again” at its ban on offshore drilling.
The offshore oil and gas industry generally has a good safety record. But it can only take one accident to change things forever, especially when that accident is now America’s worst environmental disaster, with anywhere between 20 – 40 million barrels of oil released, and no end in sight before August at the earliest, even with hurricanes permitting. By comparison, the Exxon Valdez spilled ‘only’ 11 million barrels.
However, where this particular decision goes is of crucial importance to all of us, because the bald truth is; deep water is where a lot of the remaining oil is. Peter Vosser, CEO of Royal Dutch/Shell said as much at a conference in South Africa recently, and other oil companies have been lining up to say the same thing. This has led many analysts to assume that pressure from the oil lobby will ultimately win out in corridors of power around the world. In spite of the disaster, Libya has granted BP the right to drill offshore, with the head of the country’s National Oil Company commenting: “you do not ban flying because of one crash”. Well, no, but then again, most air crashes don’t demolish livelihoods across a huge swathe of a major nation and wipe half the value off the world’s third largest oil company. That kind of level of risk is enough to give insurers nightmares and might make even the largest oil majors think twice about the potential downsides. At the very least, regulation and safety concerns are likely to push up costs and push out completion dates. In a world where we may be approaching Peak Oil production, this can have a major effect on oil prices.
But there are more fundamental questions at stake here for the oil and gas industry. BP’s own annual Statistical Review of World Energy, published earlier in June, shows proved global oil reserves of 1.3 trillion barrels; about 45 years at current consumption rates. But it does not show how much of it is in difficult areas; difficult politically, or difficult technically. Deep water, small fields with complex geology, highly sour, maybe shales or oil sands with environmental risks attached… the job of being an oil producer is getting ever more difficult, more complex, and more expensive.
For Big Oil this has actually been a plus point; their technology and expertise therefore remain a marketable commodity even after national oil companies in the developing world have gained sufficient expertise to conduct ordinary operations by themselves. But as the Deepwater Horizon disaster has shown, it also lays them open to much bigger risks. No more is this so than where it comes to handling some of the corollaries of the sourer and more challenging oil and gas fields that are under development, namely sulphur and its compounds. A blowout at a sour gas well could potentially have even more catastrophic consequences than one 10,000 feet below sea level. Thiophilos’ comments in this issue’s Last Words are especially pertinent to this: everyone needs to consider their thio-liability these days.

No comments:

Post a Comment