Apr
24

Oil Spill +5: Deepwater Conditions Test Industry’s Capabilities

 
Five years after the Deepwater Horizon oil spill—widely regarded as the most significant in American history—the petroleum industry has pushed forward on new technologies to prevent future environmental catastrophes. Development has returned to the Gulf of Mexico. Analysts predict output from the region’s offshore rigs to reach a high of 1.5 million barrels of oil per day by 2016, but these projects may find themselves bumping up against the recent plunge in crude oil prices, prompting some to wonder how the industry plans to ensure the profitability of such capital-intensive operations and—importantly—how it will prevent similar accidents from occurring in the future. Just this week, the Interior Department announced new rules aimed at enhancing the reliability of subsea drill equipment and sharpened its efforts to regulate deep sea blowout preventers, the trigger in the 2010 incident that also killed eleven rig workers. The government’s proposed guidelines mandate drillers complete an annual third-party review of these technical components and requires comprehensive inspections every five years. The Interior Department now monitors the casting and cementing of well walls, and requires new safety management systems. The Bureau of Safety and Environmental Enforcement (BSEE) has also increased the number of inspectors regulating wells in the Gulf from 53 in 2010 to 99 today, according to the agency. Interior’s new rules are a significant departure from the government’s regulation of the industry in 2010, which prompted criticism for failing to marshal an adequate response to the spill. The Coast Guard, for instance, relied entirely on outside equipment and expertise in responding to the blow out. Authorities also determined there was not enough containment booms to control a massive spill. And emergency plans were wholly outdated—to the point of being irrelevant—in the context of deep-water well failures, the Associated Press found. "By initially underestimating the amount of oil flow and then, at the end of the summer, appearing to underestimate the amount of oil remaining in the gulf, the federal government created the impression that it was either not fully competent to handle the spill or not fully candid with the American people about the scope of the problem," investigators for the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling said in a scathing review of the disaster response. Industry has since stepped up its capabilities. BP, which was found “grossly negligent” in the spill, remains at the forefront of companies like Chevron, Statoil, Shell, and ConocoPhillips that are developing these new energy resources. BP’s “Project 20K”—reportedly named for the 20,000 pounds of pressure per square inch that equipment must withstand—is one example of its investment in improving blowout preventer technologies. The international oil major has also stepped up training with high-tech simulators and 24/7 onshore monitoring of well operations, it says. BP now has submarine robots that can quickly activate blowout preventers in an emergency, a rapid response technology that was not available just five years ago. In 2013, a collection of deep-water drilling operators and oilfield service companies completed an internal audit that found zero fatalities, loss of well of well control incidents, or oil spills greater than 10,000 gallons that year. The spill did not curb deep-water Gulf of Mexico production. In the decade preceding the 2010 disaster, drillers were drawn towards deeper hydrocarbon reserves by rising oil prices and the availability of new technologies to access them—an offshore drilling boom that was only briefly halted by a six month moratorium after the spill. Geophysicists say the “golden zone” for oil and natural gas—lying roughly 20,000 feet beneath the sea surface, and under a 10,000-foot layer of thick ancient salt—could contain oilfields capable of producing gushers of over 300,000 barrels of oil per day. Wood Mackenzie, a global energy consulting firm, says Gulf supplies will jump 21 percent above 2014 levels this year, growing even higher next year. BSEE—the agency created in the aftermath of the 2010 spill to oversee Gulf activities—adds that permits for wells have grown from 14 five years ago to 603 in 2014. Of that, the number of drill rigs at depths greater than 20,000 feet have grown from 35 to 48, says IHS Energy, a Houston-based energy research consultancy. “We believe absolutely that it is safe to drill these reservoirs,” Lars Herbst, the Gulf of Mexico regional director for BSEE in an AP interview. The movement into deeper waters is a relatively recent phenomenon. In the middle of the last decade, oil drilled from waters at depths less than 10,000 feet lost share as the preeminent source of offshore energy. Oil produced from these depths fell from 51 percent of Gulf production to 39 percent between 2004 and 2005. Concurrently, more technologically sophisticated deep-water rigs quickly supplanted shallower ones in a race to reach new energy resources. “Can an accident happen again? Of course it can, because we’re going down deeper and deeper,” cautioned Charles Ebinger of the Brookings Institution. Unlike onshore shale drilling activities, which can quickly cease production, offshore deep-water drilling is a longer-term, multibillion dollar endeavor. “There’s no stopping those,” Imran Khan, a deep-water Gulf of Mexico analyst at Wood Mackenzie told USA Today, referring to projects that were initiated prior to the oil price collapse. Chevron’s recent $7.5 billion project—in development for years—is forecast to be able to produce 170,000 barrels of crude each day for the next 30 years. Industry’s ability to match these technological capabilities with production output will depend on tough safeguards to prevent ecological harm. The stakes are high—but so are rewards.
Apr
17

What to Know: Annual Energy Outlook 2015

 

For the first time in several decades, the United States will become a net energy exporter, the U.S. Energy Information Administration (EIA) announced this week, as energy sent abroad begins to exceed consumption at home. Net natural gas exports could begin as soon as 2017, Administrator Adam Sieminski told a gathering of industry experts, regulators, and journalists Tuesday, with net ...

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Apr
15

Crude Prices, Hedging, and Missing the Forest for the Trees

 

John Dizard has written an important opinion piece for the Financial Times, entitled “Much of the investing public will be sacrificed to the oil-money gods.” As headlines go, this one may be a challenge to parse. But the piece is well worth reading, as it articulates some disconcerting assessments of what the oil price collapse could mean for energy markets ...

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Apr
10

Cross Post: Self-driving cars put the ‘auto’ in automobile

 

This piece originally appeared in The Detroit News on Friday, April 10, 2015. Recent life-changing innovations have conditioned us to rapid change. But one universal element of daily life has remained stubbornly stagnant: revolutionary advances in transportation are few and far between. It’s been 200 years since the introduction of mechanized rail, and 100 since cars became mainstream. Now we are ...

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Apr
9

Report: Safe Arctic Drilling is Now Possible

 

The United States has the technological capability to safely ramp up Arctic energy production, a federal advisory committee told Energy Secretary Ernest Moniz last week. If drilling operations were to begin in this decade, the Arctic’s immense new resources could be fully developed by the mid-2030s and sustain U.S. oil and gas production through the mid-century and beyond, the panel ...

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