A few months ago, when Oil prices started the relentless climb to unheard of (for us) heights, one thing being said by those opposed to opening up sources that we’ve kept closed for the last many years, was that it would take “10 years” or more to get that oil to the market. Well, this particular blog isn’t about that so much (that being opening up those new sources) as it is about the research I did while looking into it. See I really do research most all of what I write about.
Now mind you, I normally don’t “cut and paste” too much…, okay, some I’ll admit to, but most of what I write is the sum of the total. In researching this matter I came across an interesting article from back in 2006, which appeared in the Wall Street Journal. It’s by Mike Spector, who seems to me to be involved with reporting on Oil and Natural Gas Production issues and such.
Now, keep in mind that when Mr. Spector wrote the article, opening these banned areas wasn’t at issue. His article, however, gives some real good insights into the reality of that “10 year” talk that we keep hearing.
I haven’t included his whole article here for the sake of space and what’s appropriate to the issue, and the comments in italics are mine. I found it a bit enlightening, so I present it to you here.
Oil rigs stage exodus from Gulf of Mexico
Wednesday, July 05, 2006
By Mike Spector, The Wall Street Journal
The biggest long-term threat to oil and natural-gas production in the Gulf of Mexico isn’t hurricanes. It is the dwindling supply of drilling equipment. [The reason for this lack of equipment? Less productive areas to drill.]
Jack-up and deep-water rigs, the massive platforms and ships that drill for oil and gas in the ocean, are leaving the Gulf of Mexico for more lucrative jobs elsewhere. This is expected to accelerate production declines in the Gulf, putting upward pressure on domestic energy prices. The rig exodus is squeezing what was an already tight market for drilling equipment. In 2001, about 148 rigs were in the Gulf. Now, about 90 remain, and more are expected to leave soon. . [current rig count is 103 in use out of a total of 122 available, which leaves 19 by my count that could be utilized almost immediately]
The rig migration will have the most pronounced effect on natural-gas production and prices because most of the rigs leaving the Gulf are jack-ups used to find gas in shallower waters. [A main reason we should open up new areas for drilling is]Gulf gas reservoirs are often quickly exhausted, so energy companies must keep punching new wells to maintain production. It “certainly puts an upward bias to natural-gas prices in the long-term,” says Jeff Tillery, an analyst with Pickering Energy Partners.
Gas [natural] is largely a local market, so upward pressure on prices can’t easily be offset by increasing imports from overseas. By contrast, oil is a global commodity, and the impact of the Gulf’s shrinking rig fleet on oil pricing will be smaller, but not negligible. Hurricane-related disruptions of the crude-oil flow from the Gulf sent world-wide prices jumping roughly $10 a barrel…
Why has the rig count dropped so sharply? The duo of hurricanes Katrina and Rita in 2005 destroyed five rigs. But the bigger factor is that drilling companies are signing long-term deals to send rigs overseas.
Houston’s … …, for example, agreed late last month to send four jack-ups — rigs that stand on stilts and are used in shallow waters — to the Persian Gulf, where Aramco, the Saudi national oil company, will pay more than $160,000 a day to drill for oil and gas for four years. Ensco International Inc. will send a jack-up to Tunisia next year, where it will fetch day rates of more than $200,000 for as much as two years of work. Contracts for the larger deep-water rigs are fetching day rates exceeding…
Fewer available rigs mean fewer new wells to stem the annual declining production in the Gulf of Mexico, a region that produces about one-quarter of U.S. oil and gas. [Another good reason to expand the area available for exploration and drilling is]Federal offshore oil production, predominantly in the Gulf, decreased 19 percent between 2003 and 2005, to 458 million barrels a year, according to the EIA. Offshore natural-gas production fell to four trillion cubic feet a year in 2004 from 5.1 trillion cubic feet a year in 2001, according to the latest data.
…with the emergence of several offshore zones, the Gulf is being eclipsed by hotter prospects off the coasts of Africa, the Middle East and China. By contrast, many of the Gulf of Mexico’s richest targets have already been drilled, leaving only expensive deep-water and ultradeep reservoirs untapped. [Yet another reason to open up areas no off limits to drilling]
The demand has sparked a dramatic increase in offshore rig-building. Companies world-wide are currently building 91 major offshore rigs, up from fewer than 10 in 2003, according to ODS-Petrodata, an offshore-oil-and-gas market-analysis firm. But this wave of new rigs isn’t expected to start plying the seas until 2009. And it isn’t uncommon for this type of construction to run into delays. [Note that this expected coming online of this new “wave” of rigs would be available to be put to almost immediate use, if not within the next few years, on any new off shore areas opened up, not in some ten years as many suggest]
To compete with international markets, Gulf of Mexico producers will have to pay higher rates to lease rigs. In February , BP PLC agreed to pay Transocean Inc. $520,000 a day to keep a massive drill ship in the Gulf; the three-year contract starts at the end of 2007. BP leased the same ship in 2004 for $184,500 a day. The ship is nearly as long as three football fields and can drill in waters that are 10,000 feet deep.
“Just about any way you cut the cards, the Gulf of Mexico looks like it will be struggling in (rig) population, and that is likely to force day rates even higher,”[However, opening up new areas for drilling will allow for Gulf producers and the rig owners and operators to better compete on the world market, helping with our domestic production and supply. WE’LL have far less need to ship OUR production resources overseas to help produce Oil. Oil that we have to import for now.] -end of article.
I’ll go into the who, what, when, where’s and whys of our need to open up these areas in another blog. I just thought this was interesting and informative. And I think that it give us even more of a reason to go after this oil than just domestic supply. Like I said, more on that later.