High seas: Part Two

Part 1 of the abridged version of this article can be accessed here.

Most oil and gas development comes with significant challenges, and the Gulf of Mexico is no exception.

In August 2013, the BOEM held Lease Sale 233 for the western Gulf of Mexico region, the third installation of the Obama administration’s Outer Continental Shelf leasing programme for 2012 - 2017. The sale covered 21 million acres, containing an estimated reserve of 116 - 200 million bbls of oil and 538 - 938 billion ft³ of gas.

The first sale, held in late 2012, netted US$ 134 million in high bids, and the second, in March, 2013, attracted US$ 1.2 billion. But Lease Sale 233 pulled in a disappointing US$ 101 million on 301 000 acres (less than 5% of the acreage offered).

It is not just industry that is disappointed with the situation. The Centre of Sustainable Economy (CSE), an Oregon-based environmental think tank, filed a lawsuit in the Washington, D.C., District Court seeking to halt the BOEM’s five year leasing programme. “We argue that the BOEM cannot justify the programme on economic grounds because it failed to take into account the benefits of leaving oil and gas leases in the ground – at least for now – given the enormous uncertainty over whether or not deep sea drilling is safe, the recent glut of oil and gas production in the US onshore, and the fact that a significant portion of the refined products made from OCS oil will be exported rather than used to meet America’s energy needs,” the CSE noted.

The American Petroleum Institute (API) objected that the CSE had no standing to challenge the federal government’s decision in this matter. In December 2013, however, the Court allowed the CSE action to proceed, and it filed its opening brief in December, in anticipation of fully briefing by 28 March, 2014.

Disasters

As far as disasters went, legislation and litigation far surpassed inclement weather. The 2013 Gulf hurricane season, which ran from 1 June - 30 November, was a relatively quiet one.

But no one is resting on their laurels. Although the Hurricane Centre has yet to release its 2014 forecast, there is simply no way to predict when a major hurricane will once again bear down on the region. In 2005, when hurricanes Katrina and Rita roared through the Gulf of Mexico, they breached protective levees around New Orleans and destroyed production platforms and pipeline gathering systems.

Since then, the petroleum industry, federal agencies and the American Petroleum Institute (API) have drawn up rules to build stronger facilities and locate them further onshore. Design standards for platforms and rigs were upgraded to increase the space between platform hulls and sea level. Moorings for Mobile Offshore Drilling units (MODUs) were made 50% stronger, and GPS installed to find drifting rigs. Some pipelines were buried deeper to avoid damage from dragging anchors, others were relocated away from mudslide-prone regions. Redundancies were built in to allow re-routing around failed sections.

When Petrobras designed its production facility for the Cascade Chinook project, it sought out a design that could deal with even the most severe weather.

The future

Over the next several years, the Gulf industry is going to see a new player enter the region in a big way.

Over the last decade, Mexico’s daily production has decreased from 3.8 down to 2.5 million bpd, primarily due to declines in the offshore giant Cantarell field. Now, the administration of President Enrique Peña Nieto has brokered significant legislative changes that will end Pemex’s monopoly and allow the participation of international oil companies in the upstream sector.

Although details of participation have yet to be worked out, explorers have their eye on the Mexican portion of the Gulf, in which the Lower Tertiary play continues.

In the longer term, Wood Mackenzie sees a bright picture for the region. The consultancy predicts more than US$ 70 billion will be spent on exploration by 2030, more than all other key deepwater provinces worldwide combined.

Although many new and emerging basins, from the pre-salt region of Brazil to West Africa and the Arctic, will draw ever-increasing attention from international explorers, the Gulf of Mexico will remain a preeminent destination for some time to come.

Pipelines

As explorers reach further and further into the deepwater portions of the gulf, operators are increasingly relying on more viable alternatives to pipelines, including various floating storage and offloading vessels (FPSOs).

Recent pipeline activity in the Gulf of Mexico has largely centred around onshore activities relating to connecting new and growing sources of unconventional hydrocarbons to the refining and petrochemical facilities situated on the Gulf Coast.

Shell is reversing the flow direction on its Houma-to Houston (Ho-Ho) pipeline in order to service growing production from the Eagle Ford oil shale play.

In late November 2013, EPP began injecting ethane into the Appalachia to Texas Express (ATEX) pipeline.

TexStar Midstream will build and operate a 30 000 bpd pipeline system for Calumet Specialty Products.

Kinder Morgan is expanding its Eagle Ford system in order to meet increased production from ConocoPhillips’ fields.

Written by Gordon Cope and edited by Elizabeth Corner

Part 1 of the abridged version of this article can be accessed here.

The full article can be found in the April issue of World Pipelines.

Read the article online at: https://www.hydrocarbonengineering.com/special-reports/15052014/high_seas_part_two_regional_report_from_the_gulf_of_mexico/