Late last year, deepwater oil production in the Gulf of Mexico for the first time exceeded production from the shallower waters of the outer continental shelf. And deepwater gas production should outpace conventional gas operations in the gulf in another decade-maybe sooner, say industry officials.
Such statistics confirm the growing industry consensus that the deepwater Gulf of Mexico has exploded into a world-class oil and gas province in the last 4 years.
"Truly, the deep water will drive the new millennium," said Chris C. Oynes, gulf regional director for the US Minerals Management Service, in an April report on gulf activities.
Deepwater operations growing
Deepwater development increased steadily in the gulf during 1992-95. But those waters roiled with increased activity following passage of the 1995 OCS Deep Water Royalty Relief Act.
Of the 7,600 active federal leases in the gulf, 48% are in deep waters, up from only 27% of 5,600 leases in 1992. The future of the deepwater gulf "looks bright, as many new geologic trends are only now seeing the first exploratory drilling," said Oynes.
MMS officials report 112 deepwater fields have been discovered in the gulf so far. Of those, 30 were producing at the end of 1999, a 30% increase in just 12 months.
Because of the ramp-up in deepwater activity, gulf oil production totaled an estimated 494 million bbl last year after hovering around 300 million bbl/year for much of the decade. That included a 41% increase in 1999, on top of a 47% jump in 1998. By the start of this year, deepwater oil production in the gulf was up a whopping 550% from December 1992.
Although total US oil production fell by about 410,000 b/d during 1994-98, MMS officials note that the drop would have been nearly twice as steep if not for a 321,000 b/d jump in deepwater oil production from the gulf.
Deepwater gas surges
Since 1992, deepwater gas production in the gulf has skyrocketed a blistering 800%. That included a 51% jump in 1999, following a 47% increase in 1998.
Deep waters still account for only a small portion of the gulf's total natural gas production. But with rapid depletion of shelf reserves and the strong push by both independents and majors into deep waters, MMS officials expect the shelf to contribute only 36% of the gulf's total gas by 2015, down from 92% in 1995.
In a separate April report on future offshore gas supplies, MMS said shelf gas production will likely peak at 4.35 tcf in 2003 before declining at an average rate of 4%/year through 2020. "Increased drilling and nonassociated gas completions in the shallow shelf area may reduce the present decline rate in net production from the area," said MMS.
It expects deepwater gas production in the gulf to increase steadily to 2.2-2.9 tcf/year during that same period. Production from the slope area-in 200-1,000 m of water-should increase through 2005 before declining slightly, says MMS. But production from deeper gulf waters will increase through 2015 and may possibly equal production from the shelf a few years later.
Bigger completions
Deepwater completions of both associated and nonassociated gas have increased steadily over the last 10 years, with an exponential rise in total deepwater gas production.
Production of nonassociated gas in the gulf's deep waters averaged 3.1 bcf per completion in 1998, compared with an average 870 MMcf/completion in shallower gulf waters, said MMS. Deepwater production of associated gas averaged 980 MMcf/completion vs. 100 MMcf in shallow water.
Nonassociated gas accounts for 55% of total production from the gulf shelf, but production from the five deepest gulf leases yet brought on-stream are 11% nonassociated gas, 25% associated gas, and 64% oil, said A.L. (Andy) Hardiman, vice-president of Chevron U.S.A. Production Co.'s deepwater business unit in New Orleans.
Geological conditions indicate that, as the industry delves deeper in gulf waters, oil discoveries are more likely than pure gas plays, Hardiman said. "In deep water, if you want the gas, you've got to get the oil," he told industry representatives at a US gas symposium sponsored by the MMS Apr. 25 in Houston.
The deep waters off Florida are as likely to be as oil-prone as the rest of the deepwater gulf, Hardiman said. But even if drilling is restricted to more than 100 miles from the Florida coast, he said, it would still provide "a big opportunity" for the industry to explore large structures in the eastern gulf.
Big gas potential off Alaska
Alaska's OCS accounts for about 47% of the undiscovered conventionally recoverable resource (UCRR) of US gas, which was last assessed by MMS in January 1995 at some 268 tcf. That's more than the Gulf of Mexico, which was assessed at 95.7 tcf, or about 36% of total UCRR. Gas resources off Alaska aren't expected to make a significant contribution to the US market in the next 20 years, however.
New pipelines "will undoubtedly open up Alaska to furious gas activity," said MMS. But currently stranded onshore gas reserves will be developed before more-costly programs are funded to produce offshore gas.
Meanwhile, the gulf accounts for some 80% of current undiscovered economically recoverable resources (UERR) of US gas, MMS officials said. Based on the 1995 numbers, officials figure there are 140.5 tcf of gas yet to be discovered, developed, and produced from the US OCS, including 72.5 tcf of UERR, 37 tcf of remaining recoverable reserves, and 31 tcf from reserve appreciation.
But offshore oil and gas resources in the gulf are presently being reassessed on the basis of a significant amount of new data from additional 2D and 3D seismic surveys, a large number of exploratory wells, and new discoveries in deepwater and subsalt areas. That could mean a 20% increase in the gulf UERR, hiking the total amount of gas to be discovered to 154.5 tcf, said MMS.
Total gulf gas production likely will peak at 6.07 tcf/year in 2005, according to MMS's base scenario but could hit 6.71 tcf in 2010 under its most "aggressive" projection. The National Petroleum Council, on the other hand, predicts a steady increase in gulf gas production from 5.2 tcf/year in 1995 to a peak of 8 tcf in 2010, followed by a slow falloff to 7.6 tcf in 2015.
The federal OCS currently accounts for as much as 27% of all US gas production, primarily from Gulf of Mexico operations. But if MMS predictions prove true, that could drop as low as 20% within the next 20 years.
Rigs needed
There are currently 45 rigs in the Gulf of Mexico capable of working in deep waters, said MMS officials. Those include 5 capable of working in 1,000-1,499 ft, 22 in 1,500-4,999 ft, 14 in 5,000-7,499 ft, and only 4 in 7,500 ft or more, where there are already 470 active leases. However, 15 rigs are under construction that can work the ultradeep waters of 7,500 ft and beyond, according to MMS.
Yet even with that increase, only a small fraction of the 3,670 active deepwater leases can be drilled before their expiration dates, said MMS. The largest number of deepwater exploratory wells drilled was 109 on 75 different leases in 1998, with an average of 28 deepwater rigs working at any given time during that year. In 1999, there were an average 27 deepwater rigs working in the gulf. MMS officials expect an 11% increase over 1998 numbers through 2001, which means another 83 deepwater leases could be evaluated each year. But if deepwater gas production is going to ramp up to meet future demand, "we'll have to have a lot of discoveries," Hardiman said.
US gas demand is expected to surge as much as 60% over the next 20 years from 1999's estimated consumption of 19.6 tcf, which was up 1% from 1998 levels. Various industry and government assessments project US gas demand levels of 30 tcf by 2010, 33.5 tcf in 2015, and 35 tcf by 2020.
Imports of Canadian gas are expected to increase to 4.3 tcf by 2020 from 3 tcf in 1998. LNG imports also are expected to increase "significantly" over the next 20 years, primarily from Australia, Algeria, Nigeria, and the Middle East. Even the former Soviet Union will likely become "a minor source of gas imports" to the US, said MMS. Yet, the agency predicts the portion of US gas market to be supplied by imports will dip to 13% by 2020 from 14% in 1998 as total US gas production increases.