Friday, April 30, 2010

Thunder Horse & The Limits of Technology

Back in 1999 the Thunder Horse complex in the Gulf of Mexico (GOM) was the new kid on the block, and the deepest. There are two fields, Main and North. It posed a lot of technology challenges but BP, the same folks who brought you the Deepwater Horizon fire, had high expectations. The estimate was 1B bbl of oil in the Main Field alone, and an expected production rate of 250K bbl of oil per day.

BP solved the challenges, survived GOM hurricanes, and got production underway, understandably later than planned. Unfortunately, Thunder Horse has not lived up to its advertising, and according to this analyis at The Oil Drum it is unlikely it ever will. Water has found its way (eventually it always does) into the production lines. Not unexpected and BP planned for it. However, PB did not plan for so much water so soon, thus the concern that Thunder Horse is already in terminal decline.

Thunder Horse is just one deep water GOM complex, but the Neptune complex is also under scrutiny. The denizens at The Oil Drum are paying close attention to its production, and already the Cassandras are at work.

The Deepwater Horizon fire will no doubt restoke the arguments of the environmentalists about the risks of drilling in the GOM, especially in deep water. The efforts to kill the fire and the leak are time consuming and expensive. The BOP (Blow Out Preventer), which would have prevented the leak, apparently failed to work as intended. Getting the answers to questions about the BOP, how the fire started, and capping the leak will be the focus of more than just BP and its official overseers. There are legitimate concerns that need to be addressed, no matter how much the DBD! (Drill Baby Drill!) crowd might grumble.

If Deepwater Horizon is a reminder of the serious risks that still attend to drilling for oil, Thunder Horse should be a reminder that even the best estimates can be very very wrong. Deep water drilling is difficult, but the techonology exists and, usually, it works. Petroleum engineers and geologists generally know what technology to use in order to produce the oil, and they plan based on the information in front of them and, generally, they succeed. However they don't know what they don't know. Was the Deepwater Horizon fire strictly due to human error or was there more than that involved? How is it that BP underestimated the production rate for Thunder Horse, arrived at via the best technology available? The DBD! crowd will hail every find as manna from heaven but there are no guarantees that there is as much manna as first appears, or that it will rain down on us at the rate we expect. These are not trivial considerations given that most Americans are not ready for, nor will they appreciate the need for, a downsized lifestyle that may not look at all like BAU.

Friends, please remember this every time you hear about a new find of hundreds of millions of barrels, or billions of barrels, of oil in remote locations and deep water. The immediate future will feature more Thunder Horses and Deep Water Horizons. Smile and nod in all the right places when you hear that a new find will help America reduce its dependence on foreign oil. But always keep in mind that the numbers are only estimates and the proof is in the pudding itself.

1 comment:

The North Coast said...

These off shore finds are not only negligible in size relative to our demand for oil, but they are massively expensive to exploit.

85 Billion barrels, the projected reserves for Chevron's latest offshore find, sounds impressive, but that is only slightly more than ten years' worth of oil at current rates of consumption in the U.S. Worse, the drill will cost about $120 a barrel under the most optimistic assumptions, which are that we could possibly recover that much oil and nothing goes wrong- such as a major platform fire and spill. And that's the price just to recover the oil, without reckoning refining, transportation, and retail markups.

And other offshore finds are tiny. 1B to 3B finds are very small,even though they add up and every drop helps.

Needless to say, the actual cost will be much higher. High risk drills like the Chevron project are last resort, after every other possibility has been exhausted. It will be extremely expensive oil and nobody wants to talk about what recourse we will have after we've run to the end of these reserves, which would take much less time than it's taken to exhaust the elephant fields of Texas, or reach the peak of production in the vast Gwaihir field of Saudi Arabia, which looks to be peaking right now.

If it will cost at least $120 a barrel to drill, before figuring in the other costs, is it realistic to expect oil to remain at $85 a barrel? Is Chevron doing this to be charitable and write down a $35/barrel loss?

The cost of recovering liquids has risen dramatically. It only took 1 barrel of oil to recover 100 barrels in the Texas fields back in the 50s, but now the investment in exploration and drilling costs about 50 barrels per 100 invested. When you consider that, oil begins to look very cheap at current prices, which is a scary thought.