BP's Deepwater Horizon and the Future of US Offshore Production
These are scary times. We all know about the tragic accident that occurred April 20th at Mississippi Canyon 252. Transocean's Deepwater Horizon drilling rig contracted to BP experienced a blowout resulting in an explosion that killed 11 workers and began spilling an estimated 5,000 bbl per day into the Gulf of Mexico. This incident was indeed a tragedy for the families of the 11 who died, the residents along the Gulf affected by the spill, the companies involved and their investors, and now potentially for the future of offshore production and the country's energy security.
The Gulf of Mexico is a significant source of oil and gas for the US. In a recent blog, Stephen O'Brien points out the historical importance of the Gulf to total US domestic production. As can be seen in the production plots of domestic onshore and offshore oil taken from his article, onshore oil production has declined significantly from its peak in the mid 1980's and appears to be leveling off around 100,000,000 bbl per day; despite the run up in oil prices over the past decade, indicating the maturity of this supply.
On the other hand, the plot of offshore oil shows growth, significant growth, over the past decade due to both higher prices and technological advancements that have allowed deep water exploration and production; this is indicative of a less mature source which has future potential for expansion. If we are serious in this country about trying to be less dependent on foreign oil, we need sources that can be exploited to grow supply.
Meanwhile the government is debating increasing the liability limits for offshore operations in light of the pending environmental disaster and subsequent impact to the economies of the region. In recent statements released by Alliant Insurance and Lloyd Partners Insurance it is apparent that if these liability levels are increased as currently proposed, sufficient insurance will not be available for offshore exploration and development projects and the insurance that is available will be very expensive.
This will no doubt signal the end of the smaller domestic offshore producer leaving only those companies who can afford to self insure a significant portion of their exposure. This leaves the large international corporations (Exxon, BP, Shell, etc) and foreign national oil companies (NOCs). So much for less reliance on foreign oil, now supplies that are currently "domestic supplies" could be predominately controlled by foreign countries (like China).
For an update of BP's efforts to control the flow from the damaged well watch this video.
