'Gas slowdown is beginning of end' - Industry insiders fear onset of long, drawn-out production
decline on the US Gulf shelf at a time of rising demand from domestic market
Upstream, April 30-May 06 issue
By Anthony Guegel
THE outer continental shelf of the US Gulf of Mexico has been increasing its share of total US natural gas production, and it is troubling the industry.
Troubling because at the same time the US relies more on the Gulf for its gas supply, gas production from the shelf the region that hitherto has been a mainstay of US Gulf gas production is wavering amid high decline rates, smaller reserves and shorter-lived wells.
It has sparked an exodus of sorts among the supermajors, but where the big players have all but abandoned the shelf the independents have rushed in, redeveloping existing wells and sinking a few new ones, some of them extremely deep in the hope of finding big fields underlying developed ones.
However, some long-time industry players are fearful that diminishing gas production from the shelf may be signalling the beginning of a new long and slow decline trend from the entire shelf region.
Those in line to suffer from the ill effects may be the traditional US derrick and pipelay barge owner.
A former executive with ties to the offshore construction industry, who did not want to be identified, claims the days of the shelf pipelayer in particular may be numbered.
“There's not enough demand for shallow water, large diameter gas pipelines (in the US Gulf),” he says. “And the boats can't do anything else. We're not getting more gas out of the shelf,” he claims.
“At this point you're down to no majors chasing anything in shallow water. Guys that can lay pipe in shallow water have a rather limited market ahead.
“The Gulf is deep oil and associated gas until the cows come home,” he maintains.
“The jury is still out on deep gas and shallow gas, and after 10 years of doing mostly development drilling next to platforms you already own it's about played out.”
The US Minerals Management Service, the federal agency that oversees mineral extraction from federal lands on and offshore, recognises the potential decline of gas drilling and field development in the Gulf.
It has proposed a royalty relief regime to spur operators to explore for deeper gas deposits on the shelf, but the drilling results have been mixed.
“The problem is deep gas wells cost as much to drill as deep-water oil wells cost to drill,” the source claims. “There aren't any majors chasing it because they don't think its material.
“Even if they find a 250 billion cubic feet field, that would be a nice field for an independent but the majors aren't interested from a materiality standpoint and the independents can't afford the risk.
“The big champion for that was El Paso and they're not doing too well these days,” he adds, in reference to the company's recent cost-cutting and asset-selling moves under the weight of huge debt. “These are $20 million to $25 million wells.”
There is also another potential problem with deep gas drilling, and that is a sour gas discovery.
Sour gas can considerably narrow the choices of existing pipelines and infrastructure available for tie-in purposes.
“None of the existing infrastructure is designed to handle sour gas,”says the source.
“It doesn't have to be hydrogen sulphide. It can be just as damaging if it's carbon dioxide.”
Many older platforms lack the facilities needed to deal with it and may not have the deckload capacity to support the addition of such equipment.
The pipelines too can be eroded from within by sour gas over time. ”The problems just start when you have a discovery,” he says.
As a result, this former marine contractor executive with years of experience in the industry claims that US shelf constructors will have to change their strategy or ultimately face extinction.
”I just don't see some renaissance in shallow-water construction,” the source states.
“People don't realise the drilling didn't stop. The drilling just focused on existing sites with existing pipelines and infrastructure.
”They drill a lot of wells but if you drill off an existing platform or 50 feet away from it, there's not a whole lot of construction work.”
One last hurrah for shallow-water pipelayers may come with the large diameter, concrete-coated pipelines that will have to be laid from several proposed offshore liquefied natural gas receiving platforms.
However, these projects may not be enough to keep everyone satisfied.
Also, the fragile balance sheets of contractors like Horizon and Torch make them vulnerable to mistakes on what are inherently risky projects.
Most US contractors Global Industries, Horizon, J Ray McDermott, and Torch have already resorted to dispersing their fleets outside of the Gulf to keep them working.
A good portion of equipment has simply moved south of the border to Mexico's Bay of Campeche to assist in a massive field redevelopment programme there.
“You could come up with an argument for additional equipment down in Mexico,” the source claims.
”They're taking everything else. Throw in a pipelay barge for every 10 jack-ups they take,” he adds.
Once upon a time, the offshore industry was all shallow-water, and it started in the Gulf of Mexico.
Now the shallow-water market may be seeing the beginning of the end, and it threatens to take US shallow-water constructors with it unless they can adjust to meet the latest challenge.
The industry source says: “It had a great run for 50 years, what do you want out of life?” |
