The history of the energy world is that of continuous innovations and evolution. It is often said in the industry that oil is found in the minds of men. In order to meet the growing global demand for fossil fuel, and despite what seem as insurmountable odds, new frontiers are constantly being looked at and developed.
Offshore crude production is to play an increasingly significant role in meeting the growing global needs. Nobuo Tanaka, head of the International Energy Agency, says half of the world’s oil supplies could come from offshore production by 2015. “Offshore production currently provides one-third of the global supply, but this is set to change rapidly in the coming years. It will increase to about half in 2015,” underlined Tanaka while talking on the sidelines of the Oil & Money Conference.
However, there are severe impediments in the growth of offshore deep water drilling. Tanaka also underlines that the BP Mexico oil spill could result in regulatory changes that could cause drilling projects to be delayed and erode supply.
“If there is a delay globally, the impact could be huge,” Tanaka added, expressing concerns about the impact of any restrictions on supply on the oil market. That could be disastrous, to say the least.
The United States banned deepwater offshore drilling in the wake of the spill in the Gulf of Mexico in April. Later, Washington imposed new regulations aimed at permanently reshaping the offshore industry. These new rules established new standards for cementing, blowout preventers and well design for offshore oil and gas projects to ensure no repeat of the spill.
Oil companies have been saying since the new rules could seriously delay projects once the deepwater drilling ban in the US is lifted from Nov. 30. And until new safety measures are in place, Europe is also reportedly considering banning deepwater drilling, temporarily.
It was in this perspective, when Ivan Sandrea, vice president of Strategy for International Exploration and Production at Statoil, who is responsible for strategizing the exploration and production projects of the Norwegian oil major, came over to the International Energy Forum Secretariat (IEFS) specifically to give a talk on the “Impact of the Gulf of Mexico oil spill on future offshore developments.”
It was worth going over to Riyadh from Dhahran, burning in the process some 50 liters of petrol, to hear the views of an insider. He was straight to the point: The Gulf of Mexico spill has proven to be a game changer. The industry is under global focus and is adapting to the new, emerging environment, procedures, new equipment to meet tight specifications, new regulations, extra inspection and extra reporting environment of today. Every thing is under close scrutiny and is bound to change in the coming years. Indications are that the regulatory requirements are to go up further. Relations among the various stake holders -– governments, industry, public and media — have undergone a complete transformation in the aftermath of the Gulf of Mexico oil spill. The industry is being challenged on a number of counts, Sandrea emphasized in his talk at the IEF Secretariat in Riyadh last Monday.
Underlining the importance of deepwater drilling, Sandrea pointed out that while 40-60 percent of new reserves found over the last two decades were deepwater, most new giant discoveries today are offshore; 50 percent of non-OPEC oil today is coming from deepwater and, mind it, OPEC today is controlling only about 40 percent of the global crude market. The rest 60 percent of global crude needs are met by non-OPEC sources. And in OPEC too, close to a quarter of its production is coming from offshore reserves and this is constantly under expansion. Saudi Arabia is also undertaking offshore projects in Red Sea and elsewhere.
Sandrea pointed out that unlike onshore developments deepwater drilling takes considerable time in maturing. Lamenting the current environment, he underlined it may stifle the growth in offshore drilling in parts of the world. This may put in jeopardy the incremental offshore supplies required for future, he emphasized.
The environmentalists may not like it, yet, offshore drilling is here to stay. Future global demands require the industry to continue to grow and prosper. Risks and oil industry go hand in hand –- they cannot and will not stand separated, one can’t help underlining. Indeed a more cautious approach is needed yet the industry should not feel stifled and constrained, was the message delivered last Monday at the IEFS and one can’t contest it.
This is the reason why the oil majors, despite stiff competition amongst themselves, stood shoulder to shoulder with BP while it was under severe attack from all around. This camaraderie was evident Monday too. When asked if the BP was singled out rather harshly during the Macondo incident, presumably because it was a non–US entity, Sandrea diplomatically declined to comment, apparently not to ruffle too many feathers, yet pointed out in rather low tone that after all the oil majors are non-national in most of the places where they operate.
Later on, over a cup of coffee, he quipped casually: “Don’t be too harsh on us — after all you also need to drive your car.” And one could definitely not disagree with Sandrea on this count.
