Shale Oil Is it a Threat to Future Deepwater Development?

By Jim McCaul, International Maritime Associates
Wednesday, September 18, 2013

In general the floating production sector looks healthy and growth remains strong. But the sudden expansion of shale oil and tight oil production could disrupt the growth trajectory in the deepwater sector.

Deepwater
The underlying drivers for deepwater development point toward continued sector growth. Spot and futures crude pricing is at levels supporting deepwater development. Oil demand keeps growing and there continues to be need for new future sources of oil. The threat of supply disruption from traditional sources remains, prompting oil companies to look at alternative sources.
Activity in the deepwater sector is robust. More than 200 deepwater projects are in the planning stage that will likely require a floating production system for development. Deepwater drilling is at a high level of utilization. And the number of new deepwater projects coming into the planning stage is set to accelerate over the next few years as ~90 new drillships/semi rigs are delivered.

Shale Oil

 But shale oil/tight oil development in the USA is accelerating at an extraordinary pace. A recent study by the Harvard Belford Center projects shale crude oil production in the US could approach 5 mb/d in 2017 – compared to around 1.5 mb/d in December 2012 and virtually zero in 2006.1 Wood Mackenzie is projecting that North American tight oil production will exceed 5 mb/d by 2019.2
The US Geological Survey in April 2013 estimated the Bakken-Three Forks formation in the US (one of the three major formations) has 7.3 billion barrels of technically recoverable undiscovered oil reserves.3 Five years earlier the USGS said the figure was 3.65 billion barrels.
Pioneer Natural Resources, the largest acreage holder in the Sprabery Wolfcamp shale oil field in Texas, in August told investors that the field “is the second largest oil field in the world,” second only to the giant Ghawar field in Saudi Arabia.4

Impact on Deepwater Projects
This sudden expansion of shale oil/tight oil has two potential repercussions. First, the supply of oil from these new sources will reduce US oil imports, make more crude available for other markets and ultimately drive down the price of crude. Second, oil companies will invest in shale oil/tight oil projects using capex that otherwise might be earmarked for deepwater project starts. Both spell potential trouble for future deepwater investment.

Cost Trends

A related issue is that the cost of producing shale oil/tight oil is falling – and the cost of deepwater is increasing. Shale producers are experimenting with much denser drilling on shale oil deposits and drilling/fracking technology is improving. These advances are driving costs lower.
Meanwhile, the cost of floating production is rising as projects go further out into deeper water. It is not uncommon to see deepwater FPSOs now costing $1 billion and more, up 30 to 50% from a few years back. In June the Egina FPSO at $3.1 billion set the record for the most expensive FPSO to date.

Implications
The volume of shale oil/tight oil is still small relative to total world crude production. It accounts for only 1.5% of current world crude supply – or about the same as the combined crude production of Ecuador and Algeria, both small OPEC producers. So at the moment it is a stretch to conclude deepwater is threatened by this new crude source.
But new sources of oil have a cascading competitive impact on existing sources. They knock out high cost supply sources first. While the high cost oil sands in Canada are most threatened by shale oil/tight oil, the more vulnerable deepwater developments could be next in line. Some signs are pointing in this direction. Several deepwater projects have recently been shelved or delayed – most notable being Hadrian and Mad Dog 2 in the Gulf of Mexico.
At minimum, all involved in the deepwater sector should keep an eye on shale oil/tight oil expansion. No sense getting blindsided by the land drillers.

Contact Jim McCaul at
Tel: +1-202-333-8501
Email imaassoc@msn.com
www.imastudies.com


References
1     Leonardo Maugeri, “The Shale Oil Boom: A U.S. Phenomenon,” Harvard Kennedy School Belford Center, June 2013.
2     Wood Mackenzie, “US Unconventional Plays Will Help Reduce Imports from Abroad,” OGJ, 31 July 2013.
3     USGS, “Finds Formations Have Greater Resource Potential than Previously Thought,” 30 April 2013.
4     PNR, Presentation at the Unconventional Resources Technology Conference, 12 August 2013.

 

(As published in the September 2013 edition of Maritime Reporter & Engineering News - www.marinelink.com)
 

Maritime Reporter February 2015 Digital Edition
FREE Maritime Reporter Subscription
Latest Maritime News    rss feeds

Offshore

Seadrill: Rig Rates Have Not Bottomed

The market for oil and gas drilling rigs continues to deteriorate as oil companies cut back on investments, Seadrill Chief Financial Officer Rune Magnus Lundetrae

‘Blue Queen’ on First Mission

The platform supply vessel 'Blue Queen', an ULSTEIN PX121 design, was named at Ulstein Verft on Friday 27 February. The ship will be working in the spot market.

Fiji Maritime Academy Bullish on Prospects

The Fiji Maritime Academy (FMA) is on the right track to become one of the finest maritime training institutions in the region. It has also achieved an important

Energy

BG Group's Australian Project Helping to Double LNG Supplies

A smooth start to operations at BG Group's Australian project in Queensland is expected to help the British company to roughly double its liquefied natural gas (LNG) supplies in 2015/16,

Seadrill: Rig Rates Have Not Bottomed

The market for oil and gas drilling rigs continues to deteriorate as oil companies cut back on investments, Seadrill Chief Financial Officer Rune Magnus Lundetrae

Ghana-Ivory Coast Maritime Dispute Mar Tullow

A dispute over maritime boundaries between Ghana and Ivory Coast is damaging Tullow Oil, which risks postponement of its TEN project in the waters off Ghana's coastline.

Fuels & Lubes

EC Study on LNG as Shipping Fuel Reveals Industry Backing

As efforts to combat climate change increase worldwide, pollution stemming from maritime shipping presents a particular challenge.     The study on the perception

Oil Storage at Sea Stalls as Profit Play Fades

Traders are cutting plans to use tankers to store oil at sea as the price incentive recedes, the global head of oil at mining and commodities group Glencore's said on Tuesday.

Interview: Nakilat's Samir Bailouni

SGMF Membership - Uncovered: An interview with Samir Bailouni, Nakilat The Society for Gas and Marine Fuel (SGMF) recently interviewed one of its members, Samir

News

Ships Can’t Cope with Flow of Immigrants in Mediterranean

Merchant ship owners can’t cope with increasing flows of refugees trying to cross from Africa and the Middle East to countries like Greece and Italy, says a report

Arctic on Thin Ice

Arctic sea ice - the ice that freezes and floats on Arctic waters - is thinning at a steadier and faster rate than researchers previously thought, a new study finds.

Egypt on a War Footing to Expand Suez Canal

The Suez Canal Authority is in a race to quickly expand the vital waterway for two-way traffic by August 2015, says an Associate Press report. Workers dig round the clock on Suez Canal expansion,

Offshore Energy

Seadrill: Rig Rates Have Not Bottomed

The market for oil and gas drilling rigs continues to deteriorate as oil companies cut back on investments, Seadrill Chief Financial Officer Rune Magnus Lundetrae

‘Blue Queen’ on First Mission

The platform supply vessel 'Blue Queen', an ULSTEIN PX121 design, was named at Ulstein Verft on Friday 27 February. The ship will be working in the spot market.

Gulf of Mexico Oil Production on the Rise

Because of the long timelines associated with Gulf of Mexico (GOM) projects, the recent downturn in oil prices is expected to have minimal direct impact on GOM crude oil production through 2016.

 
 
Maritime Contracts Maritime Security Naval Architecture Pipelines Pod Propulsion Port Authority Salvage Ship Repair Sonar Winch
rss | archive | history | articles | privacy | terms and conditions | contributors | top maritime news | about us | copyright | maritime magazines
maritime security news | shipbuilding news | maritime industry | shipping news | maritime reporting | workboats news | ship design | maritime business

Time taken: 0.3006 sec (3 req/sec)