blowout in the gulf: cost, benefits, and energy security · 2016-12-30 · james c. cato. gulf of...

Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org

Blowout in the Gulf: Cost, Benefits, and Energy Security(or how to think about the oil spill)

Lucian PugliaresiEnergy Policy Research Foundation, Inc.

Washington, DC

CIEP Oil Conference“A decade of uncertainties:

Coming to grips with new oil market realities”

1 July 2010The Hague

Clingendael International Energy ProgrammeNetherlands Institute of International Relations

Active Gulf OCS Oil and Gas Platforms

2Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org

Source: NOAA


Importance of Gulf of Mexico

•The Gulf of Mexico accounts for 90% of offshore drilling in the U.S. by volume

•Accounts for approximately one third of all U.S. oil production

•Over 50,000 wells have been drilled since 1947, 4,000 of which are deeper than 1,000 ft

•Today, 80% of offshore drilling, by volume, occurs at a depth of over 1,000 feet.

•Over 400k jobs are directly and indirectly linked to gulf oil production

4

U.S. (Blue) and Federal OCS (Gulf Coast in Red, California in Green) Crude Production


Source: EIA Data

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

1000019

8119

8319

8519

8719

8919

9119

9319

9519

9719

9920

0120

0320

0520

0720

09

Thou

sand

Bar

rels

per

Day

U.S. Field Production of Crude Oil (Thousand Barrels per Day)

Federal Offshore--Gulf of Mexico Field Production of Crude Oil (Thousand Barrels per Day)

Federal Offshore California Field Production of Crude Oil (Thousand Barrels per Day)

U.S. Crude Oil Disposition


Source: EIA Data

0

5

10

15

20

25

mbd

U.S. Net Imports of Crude Oil and Petroleum Products

U.S. Field Production of Crude Oil

U.S. Product Supplied of Crude Oil and Petroleum Products, Minus NGLs and Liquid Refinery Gases

Imports

Production

EIA Forecasted Net Imports’ Share of U.S. Liquids Consumption


Source: EIA Data

0

10

20

30

40

50

60

70

1990 1995 2000 2005 2010 2015 2020 2025 2030

%

Reference

Low price

High price


Deepwater* is a Big Producer

6-6.5 mb/d worldwide from deepwater fields, should reach 8.5 mb/d by 2015.

17 countries producing from deepwater fields

28% of non-OPEC offshore crude output

U.S. has 100 deepwater fields, 1.3 mb/d in 2009

*> 400 meters

Source: Energy Intelligence Group

8

DOI Data on OCS Production and Spills


Time Period OCS Oil Production (Thousand Barrels)

Number of Spills

Barrels Spilled (Thousand Barrels)

Thousand Barrels Produced per Barrel Spilled

1960-1969 1,460,000 13 99 15

1970-1979 3,455,000 32 106 33

1980-1989 3,387,000 38 7 473

1990-1999 4,051,000 15 2 1,592

2000-2009 5,450,000 72 18 296

Source: Department of Interior Data

Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 10

Largest Tanker Spills in and near U.S. Waters


Source: API Data

0

50

100

150

200

250

300

350

Mandoil II -Pacific

Ocean, OR

Exxon Valdez -Prince

William Sound, AK

Burmah Agate -Gulf of

Mexico, TX

Pegasus (Pegasos) -Northwest

Atlantic Ocean, US east coast

Texaco Oklahoma -Northwest

Atlantic Ocean, US east coast

Keo -Northwest

Atlantic Ocean, MA

Argo Merchant -Nantucket Shoals, MA

Spartan Lady -

Northwest Atlantic

Ocean, US east coast

Gulfstag -Gulf of Mexico

Mega Borg - Gulf of

Mexico, TX

1968 1989 1979 1968 1971 1969 1976 1975 1966 1990

Thou

sand

Bar

rels

Largest Marine Blowouts in U.S. Waters


Source: API Data

0

20

40

60

80

100

120

Alpha Well 21

Platform A - Coast of

Santa Barbara,

CA

Main Pass Block 41 -

Gulf of Mexico

South Timbalier -

Gulf of Mexico

Ship Shoal 149/199 -

Gulf of Mexico

Greenhill Timbalier Bay - Gulf of Mexico

Herbert Bravo -Gulf of Mexico

Ship Shoal 29 - Gulf of

Mexico

BLDSU 6 -Gulf of Mexico

Block 60 SP0060 -Gulf of Mexico

Fred Stovall Well 9 -Gulf of Mexico

1969 1970 1970 1964 1992 1979 1965 1995 1992 1994

Thou

sand

Bar

rels

Ten Largest Oil Spills (in modern times)


Source: Popular Mechanics

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

Gulf War -Persian

Gulf

Ixtox 1 -Bay of

Campeche, Mexico

Atlantic Empress -Trinidad

and Tobego,

West Indies

Fergana Valley -

Uzbekistan

Nowruz -Persian

Gulf

ABT Summer -Angolan

Coast

Castillo de Bellver -

Saldhanha Bay, South

Africa

Amoco Cadiz -French Coast

Odyssey -Off the coast of

Nova Scotia

M/T Haven - Genoa,

Italy

1991 1979 1979 1992 1983 1991 1983 1978 1988 1991

Thou

sand

Bar

rels

BP Macondo – 2.45-4.2 MM bbls – 70 days at 35,000 to

60,000 bbl/s

World’s Largest Oil Spills

Source: National Oceanic and Atmospheric Administration, National Academy of Sciences, EPRINC Calculations , Map Data Design and Configuration Copyright ©EPRINC 2010. 14


Specific cause of the blowout awaits detailed assessment…………………………..

Anecdotal evidence points to structural integrity of the well casing (inadequate seal of the well bore).

Failure of the Blowout Preventer (BOP) to engage.

But was it poor well control practices, inadequate well design, or a failure to install an adequate “culture of safety?”

April 20, 2010 Blowout on the Macondo Prospect, US GOM

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Obama Administration Response to Blowout


•Has named British Petroleum as the responsible party

•Imposed a moratorium on sensitive offshore drilling regions• Includes deepwater oil wells (below 500 feet) on GOM lower 48• All offshore Alaska drilling at any depth

•Restructured Mineral Management Service (MMS)

•Created the “National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling”

•BP to fund $20 billion Escrow Account for Liability Claims

Moratorium Lost Production Forecasts


EIA: 26,000 bbl/d in Q4 201082,000 bbl/d in 2011

IEA: 100,000-300,000 bbl/d by 2015 should regulations tighten

IEA: If regulations tighten worldwide, could cost 800,000-900,000bbls/d. Would encroach on OPEC spare capacity, support prices.

Forecasts from Raymond James, DB, Credit Suisse range from 100,000 -400,000 bbl/d of lost production should the moratorium remain in place for 6-12 months.

Alaskan Depth Charge


•Moratorium applies to all offshore drilling in Alaska, any depth.

•Shell’s exploratory drilling program in Chukchi Sea now on hold.

•Risks extend beyond lost Chuckhi Sea production because of costs challenges to Trans Alaskan Pipeline System (TAPs)

•TAPs throughput at 670,000 b/d declining at 6% per year. When throughput hits 300,000 b/d costs accelerate and producing North Slope producing fields face potential for premature abandonment.

•Moratorium places base load North Slope output at risk.

Incremental Import Penalty to U.S. Economy


Source: EPRINC Calculation, ORNL Data

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2

4

6

8

10

12

14

16

18

100,000 bbl/d 200,000 bbl/d 300,000 bbl/d 400,000 bbl/d 500,000 bbl/d

$ bi

llion

ann

ually

ORNL Economic Penalty - $14/bbl

Revenues at $75/bbl

Federal OCS Oil, Gas and NGL Sales Volumes


Source: MMS Data

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100

200

300

400

500

600

700

800

900

2001 2002 2003 2004 2005 2006 2007 2008 2009

mill

ion

barr

els p

er y

ear

Oil Sales Volume - mm bbl per year

Gas Sales Volume - mm boe (5,600,000 BTU)

NGL Sales Volume - mm bbl per year

Federal OCS Revenues


Source: MMS Data

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Mill

ion

$

Total Bonuses

Total Rents

NGL Royalty/Revenue (million $)

Gas Royalty/Revenue (million $)

Oil Royalty/Revenue (million $)

2009 MMS Disbursements


Source: MMS Data

Billion $

States, Counties and Parishes $1.99

U.S. Treasury $5.74

34 American Indian Tribes and Mineral Owners $0.45

Reclamation Fund for Water Projects $1.45

Land and Water Conservation Fund $0.90

Historic Preservation Fund $0.15

Total: $10.68


0

5

10

15

20

25

30

35

40

45

Oil and Gas Tourism Fisheries Port/Shipping

$ bi

llion

Major Industries of the Gulf Coast of the United States

James C. Cato. Gulf of Mexico Origin, Waters, and Biota Volume 2, Ocean and Coastal Economy. Texas A&M University Press. 2009. Values can vary widely depending on commodity prices (e.g., assumes and oil price of $28.50/bbl) and therefore it should be considered a conservative estimate of the relative values of the included industries.

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MMS Estimated Technically Recoverable Undiscovered OCS Resources


Source: MMS Data

0

50

100

150

200

250

Alaska Gulf of Mexico Atlantic PacificOil (Bbls) 26.61 44.92 3.82 10.53Gas (Tcf) 132.06 232.54 36.99 18.29BOE (Bbls) 50.11 86.3 10.4 13.79

billi

on b

arre

ls o

f oil

trill

ion

cubi

c fe

et o

f gas


Blowout on the Macondo ProspectAlternate Views

Two views from the operators……………………………….

•Getting hit by a meteor is an accident, everything else is human error.

•@#!&*#! Happens!!!

One view from the government…………………………….

•It is not that we shoot ourselves in the foot that is so impressive, but how quickly we reload.

25


Four Themes for the Presidential Commission

Regulatory Program – Don’t Fight the Last War, i.e., safety culture yields higher returns than regulatory prescriptions

Building Public Trust – confidence is needed that industry can respond to a spill

Getting Liability Balance Very Important

Commission needs to understand BP’s biggest partner was not Anadarko, it was the USG

Moratorium not reducing net risk?26


What are the Stakes for the United States

OCS, particularly deepwater GOM, and Alaska are high valued assets with high energy security benefits

Value to Federal and state governments could easily range well in excess of $500 billion (money to U.S. Treasury)

Infra-marginal benefits also large (jobs, return on capital)

U.S. to remain large oil importer, alternate fuels are false choice.

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blowout in the gulf: cost, benefits, and energy security · 2016-12-30 · james c. cato. gulf of...

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