Oil Drillers, Users Say World Needs Deepwater Wells
Date: 21-Jul-10
Country: UK
Author: Emma Farge and Alex Lawler
Energy chiefs defended deepwater oil as crucial to meeting future demand, saying on Tuesday that a prolonged U.S. drilling ban in response to the giant Gulf of Mexico spill could stoke costs and threaten security of supply.
Setting aside the technical difficulties, the United States had embraced deepwater oil as a secure domestic source until BP's disastrous spill began in April and prompted Washington to impose a six-month ban.
Drilling deep under the ocean surface can provide alternative supplies to those pumped by the Organization of the Petroleum Exporting Countries, which is liable to withhold exports to boost prices.
"Shutting down or scaling back deepwater development in the Gulf would constrain supplies. It would also be a step backward for energy security," Jay Pryor, global vice president business development at Chevron, said in a speech to an industry conference in London.
"Policy-makers, while rightfully focused on the tragedy, should analyze it in context as an isolated and likely preventable event. They should keep in mind that overall the industry has a good safety record and a good record for environmental protection."
The International Energy Agency (IEA), which represents energy consuming countries, said a ban implemented by the U.S. government on drilling in deep water -- defined by the U.S. Minerals Management Service as at least 1,000 feet below sea-level -- could delay nearly one million barrels per day (bpd) of supply if extended.
At the same time, the power of national oil companies -- which control the bulk of the remaining easy, onshore oil, as well as some of the more difficult deepwater supplies -- would be enhanced, potentially meaning higher prices for consumers.
The agency, which issues a medium-term report on supply and demand on Wednesday, told a Reuters summit last month future supply forecasts might have be adjusted because of the hold ups to deepwater drilling.
IEA Chief Economist Fatih Birol on Tuesday cited two main issues.
"First, if this moratorium continues and there are delays, this may in the next five years worldwide lead to some 900,000 barrels per day of delays," he told Reuters.
"Second, if the new safety regulations end up increasing the cost of drilling substantially ... the competitiveness of the offshore industry will be badly damaged.
"If these two things come together, I see an ever-growing reliance on onshore basins with a number of NOCs (national oil companies). This is from an oil security point of view a crucial question."
BP CEO STAYS AWAY
BP Chief Executive Officer Tony Hayward, who has been lambasted over his response to the spill, pulled out of the London conference at the last minute.
He was represented by BP Group Chief of Staff Steve Westwell, who said deepwater oil operations were still the future.
"Deepwater exploration and production off the shores of Brazil, West Africa and elsewhere holds some of the greatest promise for meeting future demand," he told the conference and the scores of journalists who had been hoping to grill Hayward.
Reform was necessary, Westwell said, but ending deepwater drilling altogether was not and he warned excessive regulation could lead to excessive costs.
"This incident has been tragic, unprecedented and extremely serious. It must bring changes to the way we work but I don't believe it should stop all further deep-water production."
Transocean, the company that owns the BP-leased rig that exploded in the Gulf of Mexico in April, said the six-month moratorium imposed by the U.S. in response to the accident was unnecessary.
"I think there are things the administration could implement that would allow the industry to go back to work tomorrow without an arbitrary six-month time lag," Transocean CEO Steven Newman told reporters.
Oil services companies went to court on Monday seeking to overturn the six-month ban on deepwater drilling.
Representing national oil companies, Shokri Ghanem, Libya's most senior energy official, said he saw no impact on deepwater drilling in his country and was happy to allow BP to continue drilling there.
"In a way, while it is a real tragedy, in another way, it is also exaggerated somewhat," Ghanem said of the blown out well which a government panel estimates is gushing up to 60,000 barrels per day.
"I don't think it will affect our deepwater drilling," he said separately in an interview with Reuters television.
"I think this was an accident. It's unfortunate. It's tragic. We have to take the risk."
