Should Russia occupy more Ukrainian soil and sustain the already tense relations with the West, the U.S. government may decide to release crude from its Strategic Petroleum Reserve (SPR) – perhaps 500,000-700,000 barrels per day as suggested by the Financial Times. Such a move would undoubtedly hurt Moscow economically – not to mention several of the U.S.’ allies (notably Saudi Arabia) – as crude oil prices would probably drop below the $100 per barrel mark. But how would this affect the U.S.’ own oil production, especially the capital-heavy Gulf of Mexico? Would the White House be cutting off its nose to spite its face?
Unquestionably the sector that would feel the tightening purse strings most would be the deepwater U.S. Gulf of Mexico (GoM). Douglas-Westwood (DW) in their World Development Drilling & Production Forecast currently expect U.S. GoM liquids output to reach 1.65 million boe/d by 2020 due to a host of projects coming onstream before the end of the decade. An SPR release, however, would likely see the cancellation of seven significant subsea projects. This would see the number of subsea tree installations in water depths of over 1,000 metres drop 22% by the end of the decade from 329 in the high case (Brent price circa. $110) to 258 in the low case (Brent price below $100). The Mad Dog, Shenandoah and Buckskin projects would be amongst the list of victims. Such cancellations would see U.S. GoM daily liquids production finish the decade over half a million barrels a day lower than our high case scenario at some 1.14 million boe/d.
Ultimately, the U.S. must tread carefully in its pursuit of justice against Russia. The case outlined in this article could be repeated in other capital-heavy environments such as West Africa or Brazil and may risk alienating Saudi Arabia. The latter occurring would presumably result in OPEC cutting production in an effort to lift Brent crude above $100 per barrel, risking a tug of war with the U.S. over oil prices.