Post on 03-Feb-2022
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Blowout at the Macondo Well(or how to think about the BP Deepwater Horizon oil spill)
Lucian PugliaresiEnergy Policy Research Foundation, Inc.
Washington, DC
Fossil Fuels Expert Roundtable
Chatham HouseLondon
December 1, 2010
Discussion•What caused the blowout and containment failure?
•How risky is deepwater offshore drilling?
•What are the consequences to future of offshore oil and gas development?
•What regulatory regimes make the most sense going forward?
•Cost of the spill – large scale damage or environmental(and political) hysteria?
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
Active Gulf OCS Oil and Gas Platforms
4Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Source: NOAA
U.S. (Blue) and Federal OCS (Gulf Coast in Red, California in Green) Crude Production
5Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
6Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 7
Domestic Crude Oil Production by Source
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 8
Federal Gulf of Mexico Oil Production
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 9
Deepwater Oil and Gas Producing Countries (thousand boe/d)
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 10
Offshore Production Outlooks Through 2030
Source: Oil & Gas Journal , Vol. 108.41, November 1, 2010 , Deepwater Crude Oil Output: How Large Will The Uptick Be? RAFAEL SANDREA, President, IPC Petroleum Consultants, Inc. , IVAN SANDREA, Vice President, E&P Strategy, Statoil
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 11
World Offshore Crude Oil Production (MM b/d)
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
What Went Wrong?
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
National Commission Findings – Selected Technical Issues•Cement (potentially contaminated or displaced by other materials) in shoe track and in some portion of annular space failed to isolate hydrocarbons.
•Pre-job laboratory data should have prompted redesign of cement slurry.
•Negative pressure test repeatedly showed that primary cement job had not isolated hydrocarbons.
•Despite those results, BP and TO personnel treated negative pressure test as a complete success.
•BP’s temporary abandonment procedures introduced additional risk/
•No evidence at this time to suggest that there was a conscious decision to sacrifice safety concerns to save money
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
National Commission Findings – Selected Managerial Issues
•Individuals should be trained to challenge data
•Greater attention to anomalies, small and major
•Individual risk factors cannot be treated individually
•Greater emphasis on procedures and training, particularly low probability high risk events
•Failure to adopt clear procedures for end of well activities
•Poor communications between operator and contractors. Muddled lines of authority between BP and its contractors, and within BP
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Offshore Drilling: How Risky?
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
DOI Data on OCS Production and Spills
18Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
Largest Tanker Spills in and near U.S. Waters
19Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
20Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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)
21Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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.
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
What are the consequences to future of offshore oil and gas development?
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Obama Administration Response to Blowout
25Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
•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
26Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
EIA: 26,000 bbl/d in Q4 201070,000 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.
Note: Some restrictions called for outside of U.S., but on balance outside of US, confidence remains in offshore regulatory regimes
Source: EPRINC calculations, Raymond James, DB, Credit Suisse.
Alaskan Depth Charge
27Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
•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.
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org 28
Federal OCS Oil, Gas and NGL Sales Volumes
29Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
Source: MMS Data
0
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
30Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
31Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org
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.
Concluding Observations •Selecting between alternative regulatory approaches, Safety Case vs. Prescriptive Regulations important --- but competency at the well site is critical.
•Regulatory Program – Don’t Fight the Last War, i.e., safety culture yields higher returns than regulatory prescriptions
•Addressing Public Concerns: New Industry Led Containment Corporation is good start.
•Getting Liability Balance Very Important
•USG policy cannot ignore revenue consequences to the Treasury, local governments, jobs (some balance of costs and benefits).
•Effective USG management of crisis essential -- Did USG amplify the environmental damage?
Energy Policy Research Foundation, Inc. | 1031 31st St, NW Washington, DC 20007 | 202.944.3339 | www.eprinc.org