Offshore update

Apr. 2002 Vol. 223 No. 4  Offshore Update

Robert E. Snyder,  Contributing Engineering Editor

Natural gas market swings. Anyone connected with gas drilling in the U.S. knows about the market swing from $10/Mcf in January 2001 to $2/Mcf in January 2002, and the resulting major drop in active rigs. Speaking on this subject at Cambridge Energy Research Associates’ (CERA) annual conference in Houston, February 11 – 15, R. Skip Horvath, President of the Natural Gas Supply Association (NGSA) said, "We should not mistake the calm in today’s natural gas prices as anything more than the low side of our normal business cycle. There are two features to the production business cycle that are important: first, since the early 1990s, each price increase and decrease has been a little higher than the previous cycle. Second, the high-low price spread has increased. Both these trends underscore the underlying volatility.

"The reason for the volatility is simple: we are a commodity market and volatility is inherent in competitive commodities. But the long-term reason for the swings is more fundamental – supply. The fields where we drill are old, yielding less and less gas. Today, we have to produce 6 Tcf/year of new supply just to stay even, much less meet growing demand. We can produce the gas required to meet market demands, but we must have changes in government policy to plan for the future."

"Our industry cannot move on a dime," Horvath added, "Producing gas takes time, even years, when we are not using existing wells. To meet future market demand, we must have improved government permitting in gas-prone federal lands to ensure the most economic supply; and we must be allowed to explore for new fields in areas where we currently are restricted. These two issues are our industry’s biggest challenges."

50% growth in subsea spending. The World Subsea Report, a major new study published in mid-February by energy analyst Douglas-Westwood, and data specialist Infield Systems, forecasts continuing growth in the subsea production business. The study sees an increase from annual capital spending of $5.7 billion in 2000, to over $10 billion/year from 2003 onward. Compared to the previous five-year period, during which the estimated capex in the subsea sector was $34 billion, the 2002 – 2006 period should see a 50% growth.

The study analyzed 581 subsea projects currently under consideration for development over the period to 2006, and these were input to a specially developed model to value world markets. The total value of the global subsea market over the period could exceed $51 billion, and it could be more if the long-term growth trend continues.

Drilling and completion of subsea wells represents the most significant market segment in value terms, amounting to some $22.4 billion, or 45% of the total capex forecast. Flowlines, both rigid and flexible, make up the next biggest segment, with a value of about $15 billion, or almost 30% of the forecast market.

Activity is fairly widespread among the worldwide regions, although the UK is forecast as the leading market at 25% of the $51 billion, slightly ahead of Brazil at 19%. Activity-wise, Petrobrás is expected to maintain its leading subsea player status with prospects for 33 projects and 330 wells. TotalFinaElf plans a threefold expansion in subsea activity, taking it from 12th place to 2nd place, and edging ahead of three supermajors – BP, Shell, and ExxonMobil – largely as a result of its extensive deepwater activities on Block 17 off Angola. Statoil, 3rd in the world historically, falls to 9th place, a position to be shared by the proposed merger between Conoco and Phillips. Further information on this timely publication is available from John Westwood at Douglas-Westwood; e-mail: admin@dw-1.com.

Subsea hardware study. The reliability of subsea hardware will come under close scrutiny during the next six months when results of the current data-gathering exercise by OREDA (Offshore Reliability Database) is completed. As reported in Subsea Engineering News (SEN) of February 7, OREDA has been gathering information on the operational aspects of offshore equipment for nearly 20 years, but only in the last year – in Phase VI of its joint industry project forum – has it been decided to focus on subsea hardware. The nine operators who sponsor OREDA – BP, ChevronTexaco, ENI/Agip, ExxonMobil, Norsk Hydro, Phillips, Shell, Statoil and TotalFinaElf – operate a large percentage of the subsea wells in the world. The only other major subsea operator missing is Petrobrás.

What makes this exercise different from any number of others attempted in the past, SEN notes, is that both operators and manufacturers have agreed to participate. The four main hardware suppliers – ABB Offshore Systems, Cooper Cameron, FMC Kongsberg Subsea and Kvaerner Oilfield Products – are all involved. In previous reliability data-gathering programs, manufacturers got minimum feedback from operators. The general complaint was that once equipment was supplied, little about operational life and failures – or even maintenance – was ever reported.

Big GOM pipeline project. Following closely on the heels of the official sanctioning of BP’s Mad Dog project, El Paso Energy Partners unveiled plans for a massive new export pipeline project. As reported in the February 18 Gulf of Mexico Newsletter, the new 380-mi pipeline, dubbed the Cameron Highway, will be capable of transporting up to 500,000 bopd from the Southern Green Canyon and Western Gulf of Mexico to shore at ports in Texas.

El Paso has entered into agreements with subsidiaries of BP, BHP Billiton and Unocal, under which the three operators have dedicated production from Holstein, Mad Dog and Atlantis fields to the new line. The pipeline will originate at El Paso’s Ship Shoal Block 332 platform. A new 30-in. line will be built to link to another El Paso platform in the Western GOM, and then extend into the High Island area. From there, two 24-in. lines will be built – one stretching to Port Arthur, Texas, and the other running to Texas City.

In addition, an interconnect at the Ship Shoal Block 332 platform with El Paso’s existing Poseidon pipeline will provide an alternate route to Louisiana oil markets for production not dedicated to the Cameron Highway. Construction of the system is scheduled to begin this spring, and it will be in service by 3rd quarter 2004. El Paso is seeking partners to take up to 50% interest in the $450-million project. It expects a positive industry response to forming a JV.