Editorial comment

Vol. 232 No.8

There hasn’t been a discussion of the peak oil theory in these pages for a few years. I don’t necessarily want to go there, but I see that The New York Times columnist Paul Krugman is already reaching for the panic button with his column “Running out of planet to exploit” on April 21. From my perspective, however, I see the oil and gas industry continuing to discover giant oil fields and immense gas and liquids plays. There remains a diverse array of resources around the world that we have opportunity to explore and develop over decades to come.

Shale oil and gas. After a decade or more of development in the US, shale plays already provide 25% of all US gas production, according to the US Energy Information Administration (EIA). There have been game-changing consequences in the downstream business. On May 20, Cheniere Energy received a permit to modify its Sabine Pass facility, originally intended as an LNG regasification plant, into a two-way facility with liquefaction capability to facilitate LNG exports. On June 6, Royal Dutch Shell announced plans to set up a “world-scale” ethane cracker in the Appalachian region to produce one million tons of ethylene a year from Marcellus shale wet gas.

A rapid decline rate is still an issue with shale, but operators are mitigating the problem by introducing manufacturing processes to drill mass quantities of identical, closely spaced wells.  Shale successes in North America have inspired exploration campaigns in prospects from Argentina to Poland, China, India and Australia.

Deepwater. Major operators are continuing to discover massive fields in the deepwater golden triangle of the Gulf of Mexico, Brazil and West Africa. On June 8, ExxonMobil announced two GOM oil discoveries and one gas discovery at its Hadrian prospect that the company estimates could produce about 700 million boe. These Lower Tertiary discoveries are adjacent to BP’s Kaskida field, which is estimated to hold 3 billion bbl of oil.

Deepwater Brazil is likely to be the North Sea of South America for the next century. The country is already producing 36,300 boepd from its pilot well in the presalt Lula field, which is expected to increase to 100,000 boepd in 2012. Petrobras is building 17 identical FPSOs that will produce 1 million boepd from the Santos basin alone. Brazil’s presalt fields hold an estimated 10–16 billion boe of recoverable resources.

West Africa is a veritable deepwater oil and gas production factory, with new fields coming onstream with clockwork regularity. Adding to continuing production offshore Angola and Nigeria, the 600 million-bbl Jubilee field offshore Ghana produced first oil in November 2010 and is expected to reach 250,000 bopd and 250,000 MMcfd by 2013. On July 21, Harvest Natural Resources announced a discovery in a presalt formation offshore Gabon.

Revival of mature basins. With high oil prices acting as an incentive, operators are pouring into mature fields from the Permian basin in West Texas to Forties field in the UK sector of the North Sea, investing in technologies ranging from 4D seismic and horizontal drilling to CO2 injection to increase production. Even Saudi Aramco will begin CO2 injection in its Ghawar field, the world’s biggest oil field, in 2012.

Frontier exploration. Oil companies are now pushing the technology envelope to explore in the Arctic, and there are other areas of the world that have been explored only lightly. For example, only 27% of India’s sedimentary basins have been explored thus far. If oil prices remain high, more oil streams will be emerging from Canada’s oil sands and Venezuela’s Orinoco heavy oil belt.

Energy economics can be difficult to predict, but the next few decades of exploration promise to be exciting indeed.