OGPSS - Drilling off the Atlantic Coast

When the Presidential Administration changes, particularly when that change involves different political parties, the results on energy policy, and ultimately energy availability and price can be, but are not always, significant. In recent posts I have cited Governor Perry’s Energy Plan were he to come to power, and have noted that, for some issues, the change in power may not have much effect. This is particularly true where the energy reserve is already being produced, with production levels being, to a degree, controlled by things such as price, rig availability and the potential promise of a well.

But there are some regions of the country where the policies of the Government can have a greater impact on potential production. And the last region that I have left to discuss of those included in the Governor’s Plan, that of the Outer Continental Shelf (OCS) and particularly that off the Atlantic seaboard, is one such. It is not, however, only Governor Perry that recognizes the potential promise of the region. This is a theme that ex-Speaker Gingrich, another Presidential candidate, has also sounded. His remarks were directed at the benefits of dredging Charleston’s port, thereby supporting the OCS activities and potentially adding 8,800 jobs in S. Carolina.

The most likely first area to be leased is that off the coast of Virginia, that was designated as Lease Sale 220.

Region designated for Lease Sale 220 by the Department of the Interior, in November 2008. (Bureau of Ocean Energy Management, Regulation and Enforcement )

At the time it was estimated that the area might contain 130 million bbl of oil, and 1.14 Tcf of natural gas.


President Obama had continued support, proposing to open the Atlantic Seaboard to drilling back in March, 2010. Unfortunately while the initial plan bad been for lease sales to begin off the coast of Virginia this year, that was put on hold with the Deepwater Horizon disaster.

Following the sealing of the well in the Gulf, and after due review, the Department of the Interior released a statement last December that noted, relative to the Atlantic and other locations:

Based on lessons learned from the Deepwater Horizon oil spill, the Department has raised the bar in the drilling and production stages for equipment, safety, environmental safeguards, and oversight. In order to focus on implementing these reforms efficiently and effectively, critical agency resources will be focused on planning areas that currently have leases for potential future development. As a result, the area in the Eastern Gulf of Mexico that remains under a congressional moratorium, and the Mid and South Atlantic planning areas are no longer under consideration for potential development through 2017. The Western Gulf of Mexico, Central Gulf of Mexico, the Cook Inlet, and the Chukchi and Beaufort Seas in the Arctic will continue to be considered for potential leasing before 2017.

However

Because the potential oil and gas resources in the Mid and South Atlantic are currently not well-known, Interior will move forward with an environmental analysis for potential seismic studies in the Mid and South Atlantic OCS to support conventional and renewable energy planning. No lease sales will be scheduled in the Atlantic in the 2007-2012 program or in the 2012-2017 program.

The current emphasis has been on the Mid-Atlantic States, particularly Virginia and South Carolina, where there is support for the idea. In contrast, New Jersey has expressed concern over the risks of offshore drilling in the past and Governor Corzine was particularly outspoken against offshore drilling or leasing acreage, feeling that it would threaten the tourism and fishing industries of the state. Governor Christie (who replaced Governor Corzine) has retained that opposition to drilling off New Jersey, but is apparently not as passionate about states further south.

The OCS was first surveyed by the USGS back in 1974, and from 1976 some 40 wells were drilled, though none brought in commercial quantities. President Carter approved a 5-year leasing plan in 1980 that saw an additional 50 leases sold over the next two years. But in 1990 President Bush withdrew the Atlantic OCS from lease potential. That action was in process of being reversed at the time of the GOM oil spill. ( Linda Bennan. )

The possible change in the party that holds the Pesidency might therefore influence the opening of leases to develop the Atlantic OCS. Given however that it was a Republican President who withdrew the acreage in the past, and that it has been advanced by Democratic Presidents, that is not necessarily a conclusive declaration. That is particularly the case given the objections of some of the Republican Governors.

But even if the decision is made to go ahead, the EIA consider that it will take at least four years from the sale of leases until production from any identified reserves can be begin, and in some cases such an interval is considered optimistic. (Art Berman has pointed out that the sequence of first carrying out new seismic work, then drilling an initial well, followed by appraisal wells, if that first well were to be successful, and then the construction of production platforms would likely move the timeline out closer to ten years). Estimates of the total oil and natural gas available vary quite widely, The BOEMRE thinks that there is 0.5 to 1 billion barrels of oil in the Mid Atlantic and 0.03 to 0.15 billion barrels in the South Atlantic. But with the slow rates of development it is unlikely that the production will exceed the estimate of the EIA, which foresaw some years ago, that this new OCS production might possibly only stabilize production of offshore oil.

Projected OCS production (2007) (EIA )

It was not expected to stabilize offshore natural gas production.

Lower 48 offshore NG production with and without increased OCS (EIA )

In which regard, the model that the EIA use in predicting production from these fields is:

For currently producing fields, a 20-percent exponential decline is assumed for production except for natural gas production from fields in shallow water, which uses a 30-percent exponential decline. Fields that began production after 2008 are assumed to remain at their peak production level for 2 years before declining.

In passing lease sales are anticipated to restart in December for the Gulf of Mexico in waters ranging from 16 to 10,900 feet deep. The prospects are considered to have the potential to the production of between 200 and 450 million barrels of oil, and 1.5 to 2.65 Tcf of natural gas. However minimum bids for the acreage bave risen from $37.50 to $100 an acre.
(H/t Gail and Art)

OGPSS - Governor Perry, an Energy and Jobs Plan

Editorial Comment: I usually would not consider this a technical talk, but rather more political, but I have just about finished reviewing the potential for growth of the reserves in North America. In that context, as I delved into Governor Perry's recently announced Energy Plan, I realized that it followed fairly closely the recommendations of the American Petroleum Institute, and other Energy Alliances. Given therefore that it might be considered the "best shot" of the oil and gas industry to predict how to increase oil and gas production in the United States, I will treat it more as such a plan, and have removed my own comments on this post. (Though I may make some in a following post. I am also using his numbers rather than other values that might be available))

One of the relevant (to this site) facets of the current Republican debates at the start of this Presidential Race has been the Energy Plan that Governor Perry put forward the other day. Because it actually gets specific about where some of the projected 1.2 million jobs he anticipates adding to the American economy will come from, but given that detail has not got a lot of publicity, I plan to briefly review it here, together with some of the source documents that were used to generate it. Please note that this is not an endorsement, but rather an illustration of one of the plans that have been suggested. Here is the summary illustration.

The jobs anticipated by Governor Perry’s Energy Plan

The entire plan is available, as a 40-page pdf, and in its shortest summary version was condensed into

My “Energizing American Jobs and Security” plan will commence or expand energy exploration from the Atlantic coast to the western seas off Alaska. We will end the bureaucratic foot-dragging that has reduced offshore drilling permits in the Gulf of Mexico by eighty percent. We will tap the full potential of the Marcellus Shale in Pennsylvania, Ohio and West Virginia. We will unleash exploration in our Western states, which have the potential to produce more energy than what we import from Saudi Arabia, Iraq, Kuwait, Venezuela, Columbia, Algeria, Nigeria and Russia combined.

The Governor puts current U.S. consumption at roughly 19 mbd with domestic supplies producing around 7.5 mbd. The nation runs on oil with transportation using 72% of the oil, and 96% of the countries transportation fuel needs are supplied by oil and gas.

The Governor inserts a quote from Governor Jindal of Louisiana that states:

According to a recent study by IHS CERA, in 2012 alone the Gulf of Mexico could create 230,000 jobs, increase revenues and royalty payments to state and federal treasuries by $12 billion, and contribute some 400,000 barrels per day of oil production towards US energy independence if the federal government accelerates the pace of permitting activity to a level that reflects the industry's capacity to invest.

This quote refers to the report “Gulf of Mexico - Restarting the Engine” by CERA which tabulates the difference achievable between a slow permitting environment, and an enhanced one over the next two years, and uses it (in more specific detail) to develop the summary table:

Projected gain in opportunities in the GOM with an enhanced permitting process (CERA )

(It should be noted that roughly 94% of this in 2011, 97% in 2012 and all of the 2013 opportunities would be in the Deepwater offshore.)

In looking next at Alaska, the Governor sees the opportunity to develop the National Petroleum Reserve, with its 896 million barrels of oil and 53 Tcf of natural gas, as well as the Alaskan Outer Continental Shelf, (under the Chukchi and Beaufort Seas) which may contain as much as 10.2 billion barrels. The report by Northern Economics to Shell is quoted that anticipates some 55,000 jobs around the entire country coming from the development, with some 35,000 jobs being in Alaska. (Of this the breakdown would be 30,000 from the Beaufort UCS and 25,000 from the Chukchi Sea OCS. It is anticipated that the increased production will fill the Alaskan pipeline again, with jobs being generated to make the connections. Which is why the 1.2 million job figure is only reached over time. Wood Mackenzie produced a report for API that is also used as a reference for the Governor, and it shows the job growth (broken down a little by source) as:

Growth in jobs related to changes in Energy Plans (Wood Mackenzie )

I am assuming that the increased production from Alaska would fit in the “Increased Access” category. And please note that the Wood Mac report carries out to 2030, while the Governor is only talking of the jobs through 2020 (which is the 1.2 million number).

And while the Governor is largely discussing this plan in terms of jobs, this is, after all, an Energy site, and so I will also add the anticipated change in oil production that is foreseen from this change in the situation – again from Wood Mackenzie.

Gains in Production from changing regulations and access (Wood Mackenzie )

The jobs numbers were derived as a count of specific jobs generated in the industry, and then using a 2.5 multiplier to add their effect on the general economy. (This they consider to be conservative, given that in cases it might be as high as 5). The overall addition of oil to the national reserve is considered to be roughly 60 billion barrels of oil, broken down as follows:

Anticipated gains in reserves added through changes in regulation and access. (Wood Mackenzie)

The Governor is a little more conservative in the oil that he anticipates coming from the Atlantic OCS, anticipating only some 3.2 billion barrels of oil and 28Tcf of natural gas, as well as creating some 10,000 new jobs. He references a report from the Consumer Energy Alliance as his source for some of this information. Note that, in contrast to the Alliance, he only anticipates that drilling would occur offshore Virginia and the Carolinas.

Looking at increasing production of oil in the Western States, he cites the Blueprint for Western Energy Prosperity (site registration required) from the Western Energy Alliance. This projects that some 500,000 jobs could be created, along with the production of 1.3 mbd of oil and an additional 1 Tcf of natural gas from Western Resources.

The increase in oil production is anticipated to come from the Bakken fields (currently at 289 kbd and anticipated to increase to 650 kbd by 2020, and it also anticipates development of the Niobara formation in Colorado and Wyoming which, from sensibly zero, has recently started to be developed and is anticipated to produce some 286 kbd by 2020. However the total gain in production from the two, over existing production in the West, is anticipated to be 529 kbd.

Natural gas, transported through the Rockies Express and Ruby pipelines is expected to add 1 Tcf of production, which the Alliance shows divided between the Western States.

Anticipated future gas production from the Western States (Western Energy Alliance )

The Alliance makes the point, as does the Governor, that reaching these levels requires a reduction in legislation, and regulation, and improved access to federal lands.

Approval of the Keystone Pipeline (a topic of current debate) is expected to add 20,000 new jobs, which only leaves the allowance of increased development of the Marcellus and Eagle Ford shales (dependent on the allowed use of fracking the shale) to add respectively 250,000 jobs in the New York, Pennsylvania, Ohio region, and 68,000 jobs in Southwest Texas, and you have the Governors 1.2 million.

The jobs anticipated by Governor Perry’s Energy Plan

To achieve this the Governor proposes:

1. Immediately return to pre-Obama levels of permitting in the Gulf, followed by responsibly making more of the Gulf available for energy production.
2. Open the ANWR Coastal Plain (1002), National Petroleum Reserve Alaska (NPR-A), and the Alaskan OCS (Beaufort and Chukchi Seas) for development.
3. Open the Southern Atlantic OCS off-shore resources for development.
4. Immediately approve the Keystone XL Pipeline.
5. Expand on-shore oil and gas development in Utah, Colorado, North Dakota, Montana, New Mexico, and Wyoming, authorizing more development on federal lands.
6. Oppose federal restrictions on natural gas production, including hydraulic or nitrogen fracturing and horizontal drilling.

As I mentioned at the beginning I will make some comments on this, in light of my recent posts on North American Energy in a later post.