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Archive for the ‘Offshore Energy – General’ Category

Although we are still waiting for the report on the 2021 Huntington Beach pipeline spill, all evidence indicates that the spill was caused by a container ship anchor. Available information to date also suggests that the pipeline was well maintained and properly operated. The volume spilled and resulting damage was less than predicted. Nonetheless, some vocal opportunists took full advantage of the spill to further demonize offshore production.

One of our very savvy BOE readers shared data (attached) from Oil in the Sea III, a National Academies report that is the best source of information on oil inputs into US waters. The data for Southern California are presented below in 3 charts. The first chart shows that natural seeps are overwhelmingly the leading offshore source of oil entering SoCal waters, with offshore platforms and pipelines accounting for <0.5% of the oil.

The second and third charts exclude natural seepage and compare the coastal and offshore oil inputs from the other sources. When land based transportation inputs are included (chart 2), platforms and pipelines (combined) account for 5.3% of the oil.

Excluding natural seepage and land based transportation inputs (chart 3), recreation vessels are by far the leading source of oil (47.5%), with platforms and pipelines (combined) accounting for less than half that volume (22.2%).

These data add important perspective, but are not intended to discount platform and pipeline spills. These spills can have significant localized impacts, and every effort must be made to prevent their occurrence.

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Not new, but a nice song and video about good people.

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Per Wood Mackenzie, companies with low transition scores (i.e. the purer oil and gas plays) command higher valuations. I’d like to see the scores for other US independents.

First, investors piled into the pure play oil and gas producers that are most leveraged to oil prices, much as they would in any upcycle. US independents led the sector rise through early June before the oil price and shares fell back over the last month.

Euro Majors are also reaping the earnings and cash flow boom. Share price performance has been strong relative to the wider stock market, but most have lagged their US peers. US Majors have long commanded a premium rating to their European counterparts, partly a function of the relatively high rating of the US stock market. The gap though has widened.”

Wood Mackenzie

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Given the differences in our views on energy policy, particularly with regard to oil and gas, this WP opinion piece is pretty reasonable. The Post acknowledges the continued need for oil and gas, and the importance of domestic production. That said, two statements in the paragraph pasted below warrant immediate comment.

In reality, neither argument is convincing. The Biden administrationโ€™s proposal โ€” which opens the door to up to 11 potential lease sales, 10 in the Gulf of Mexico and one off the coast of Alaska โ€” would have little impact on current energy prices. It would take between five and 10 years to produce oil after a new offshore lease issuance, according to the Interior Department, while more than three-quarters of already-leased offshore federal waters are not in production.”

WP Opinion

Comments:

  1. The purpose of the 5 year leasing plan is to minimize future energy supply and security risks, not to reduce current prices. However, acknowledgement of the importance of offshore production and support for regular lease sales could influence market psychology.
  2. The old and tired arguments about non-producing leases have been frequently addressed on this blog. When you purchase leases, you are not buying oil and gas. You are buying only the opportunity, for a limited period of time, to explore for these commodities. The current percentage of producing leases is actually rather high by historical standards. For more on this topic, see this and this.

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In particular, the Energy and Interior Secretaries would benefit from a visit to a deepwater production facility. They would no doubt be impressed and would be better able to make informed decisions affecting US offshore leasing, exploration, and development.

The offshore workers would be respectful and would welcome the opportunity to discuss the technology, safety precautions, and environmental protection measures.

Perdido

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My involvement with Ohmsett dates back to the 1970s when EPA operated the facility and I was on the Ohmsett Interagency Technical Committee. The facility fell into disrepair in the late 1980s. Thanks largely to the vision and initiative of my Minerals Management Service (MMS) colleague Ed Tennyson and the enactment of the Oil Pollution Act of 1990, the MMS began restoring the facility in 1990 and resumed testing activities in 1992. Senator Frank Lautenberg (NJ) and a host of dignitaries participated in the grand reopening event.

The facility has lived up to the hype and the current BSEE leadership team seems committed to continuing the testing and innovation. For more information about testing at Ohmsett, including renewable energy concepts, check their website. For an excellent summary of Ohmsett activities from 1992-97, see this paper.

Among the many companies to test equipment at Ohmsett is one that was partially owned by actor Kevin Costner. See the article and photo below. If you build it (and maintain it), they will come!

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Per Rystad’s independent and highly regarded global energy assessment:

The (worldwide) drop in reserves is driven by the 30 billion barrels of oil produced last year, plus a significant reduction in undiscovered resources, to the tune of 120 billion barrels. The US offshore sector has contributed the largest total to that drop, where 20 billion barrels of oil will remain in the ground, largely thanks to leasing bans on federal land.

The decline in reserves should come as no surprise to those who follow the US offshore sector. Note the sharp decline in exploratory drilling in the (updated chart below) and the calls for action on this blog a year ago and more recently.

The OCS oil and gas program requires a sustained, consistent commitment by government and industry. Such a consistent commitment, even though required by legislation, is difficult to achieve in our political system, .

The proposed 5-year leasing plan portends further declines in the OCS program. Those who are celebating the progam’s downfall may not be so smug 5-10 years from now.

The commitment by the oil and gas industry has also been uneven and in some cases disappointing. BOE continues to be troubled by the reduction in exploration by some companies and the decision by others, including leading US companies with a long history of Gulf of Mexico operations, to exit the US offshore sector completely (see the chart below). The exploration decline began before the leasing shutdown (now 600 days in duration). Inconsistent signals from the Federal government and corporate directors, market considerations, and competing investment opportunities are major factors, but there are no doubt other considerations. Constructive dialogue to address these issues is badly needed.

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since the last US offshore oil and gas lease sale. As a result…

  • the number of active leases has fallen below 2000 (1987 as of July 1, 2022) for the first time in at least 40 years
  • 99.4% of the US OCS is closed to exploration
  • exploration opportunities continue to dwindle negatively affecting reserves (more on this in an upcoming post)

Of the 1.7 billion acres on the US OCS, 10.6 million are currently open to exploration and development.

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SEE MONSTER is due to arrive by sea into Weston-super-Mare on Tuesday, 12 July. The transformation of this decommissioned North Sea offshore platform is a world first that is set to become one of the UKโ€™s largest public art installations, aiming to inspire global conversations about the repurposing of large industrial structures and design-led solutions to sustainable futures.

Learn more about See Monster. Were they inspired by our Rigs-to-Reefs +++ page? ๐Ÿ˜€

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Like offshore platforms, BOE readers are useful long after “retirement”๐Ÿ˜

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