With the offshore show coming to town, the Gulf industry at a crossroads

WASHINGTON – For most After 80 years of drilling in the Gulf of Mexico, oil companies could rest assured that demand for their product, although subject to short-term fluctuations, was assured for decades to come.

But certainty that the world will always need more oil has faded, as governments around the world work to reduce reliance on fossil fuels in a bid to tackle climate change. Even though oil prices have rebounded in recent months, exploration in the Gulf of Mexico remains on the decline and offshore drilling rigs are being scrapped.

“Everyone is trying to figure out what future demands will look like,” said Erik Milito, president of the National Ocean Industries Association business group. “(The forecast) is everywhere right now.”

As energy managers, exhibitors and sales representatives head to NRG Park in Houston on Monday for the annual Offshore Technology conference – the largest trade show of its kind in the world – they find their industry at an uncertain crossroads. The rapid spread of the delta variant of the coronavirus, which has led participants to cancel reservations and a major exhibitor, oil services giant Schlumberger, to step down, added to this uncertainty, rekindling concerns about economic growth and the energy demand.

Officials at the Offshore Technology Conference say their safety and health plans for this year’s event are under constant review. Friday afternoon, here are the protocols they have put in place:

• CTA staff, contractors and suppliers will be required to wear masks at all times inside the NRG Center.

• Masks are encouraged for participants and exhibitors, but not mandatory. OTC will have free masks available.

• Participants will be encouraged to follow social distancing protocols while interacting with others.

• Participants who feel ill will be invited to attend the conference virtually.

• Exhibitors will be urged to systematically disinfect their stands and equipment, discouraged from distributing printed materials and encouraged to screen staff for COVID-19, practice social distancing and comply with NRG Park guidelines.

For more information on OTC’s health and safety protocols, visit 2021.otcnet.org/health-and-safety.

Oil prices, which hit a recent high of around $ 76 a barrel, the highest in three years, fell below $ 70 a barrel amid a new backdrop of COVID-19 infections. Prices are expected to recover in the near term as the latest wave of the pandemic is brought under control and the economy regains momentum, but the long-term outlook for oil and offshore drilling darkens as climate change grows the world to significantly reduce its consumption of fossil fuels.

OTC is returning to Houston for the first time since 2019, after the coronavirus pandemic forced last year’s event to be canceled. Meanwhile, the offshore sector, which was just beginning to recover from the two-year oil crisis that ended in 2016, has suffered the hardest hits in last year’s historic collapse in demand. . The prices of certain grades of oil in the United States briefly turned negative last spring.

But this year’s rally in oil markets – even with the recent pullback – has sparked optimism that projects in the Gulf of Mexico suspended at the worst of the pandemic could start before the end of the year, a said Justin Rostant, analyst at research firm Wood Mackenzie.

Analysts predict that Royal Dutch Shell will begin drilling its Whale project in the deep waters of the Gulf of Mexico later this year, as will Total on its North Platte project. And an announcement is expected overnight on Beacon Offshore Development’s Shenandoah field, after the company signed an agreement with Williams Co. in June to bring natural gas ashore.

“Offshore is recovering from the low level of 2020, when a lot of capital was taken out of the industry,” Rostant said. “We are seeing companies coming back to investing, which is exciting to see. “

All is not, however, rosy. Although the companies are starting to develop projects they have been working on for years, they have not returned to search for the next generation of oil and gas in the Gulf of Mexico, Rostant said.

Much of that reluctance comes from Wall Street, which has increased pressure on the oil and gas industry to slow spending and contain debt, to return more money to shareholders, but this saving may well be temporary. The oil and gas industry has a long history of cutting capital spending, only to throw caution to the wind once oil price forecasts show that money is to be made.

“We have been through a long and difficult time with the price of raw materials, but we are coming out of it,” Milito said. “When you go through a prolonged period of low prices, it results in significant underinvestment in exploration projects. “

Generic character

The wild card this time, compared to previous oil crashes, is climate change.

Scientists warn that if the world does not start drastically reducing greenhouse gas emissions, the world risks triggering the dramatic and destructive effects of global warming by 2040, including flooded coastlines, poor harvests and forest fires.

To avoid this scenario, most of the world’s major economies, including the United States, have pledged to reduce greenhouse gas emissions to net zero by 2050. Governments are still debating how to do so. accomplishing what amounts to a complete overhaul of the global energy system in less than three decades, but momentum continues to grow, with businesses, cities and states also committing to do their part.

The question is how quickly these efforts will start to affect demand for oil, which is expected to hit 67.7 million barrels per day next year. In May, the International Energy Agency, which advises the world’s major economies, warned governments that to meet the Paris climate accord target, new oil and gas developments must stop immediately. .

Offshore projects, which cost billions of dollars and are expected to produce oil and gas for decades to come, are most at risk in such a scenario, said Mike Sommers, president of the American Petroleum Institute. But he rejected the idea that drilling in the Gulf of Mexico, one of the world’s largest offshore oil fields, would end anytime soon.

“Offshore continues to be a key base for US oil and gas,” he said. “About 15% of American (gross) production is offshore. This is an important part.

Just days after taking office, President Joe Biden announced he was suspending leasing of oil and gas on federal lands and waters, including the Gulf, as officials examined the contribution of those operations to the climate change. In June, a Louisiana federal judge ruled that Biden must end the hiatus – a decision the Home Office said he would comply with.

That won’t stop Biden’s review of federal leasing practices, but that process isn’t preordered either. A 2016 review of the U.S. offshore drilling industry by the Obama administration found that greenhouse gas emissions would actually increase if leasing was discontinued, as more oil and gas would have to be imported from fields. carbon-intensive overseas.

This message is a message that oil lobbyists are lobbying the administration for, but the success they are getting is unclear, Milito said.

“I don’t really know the answer,” he said. “On the permitting side, they’ve done what they’re supposed to do and therefore these big projects are live. We are very supportive of (addressing) climate change, and we’re trying to get the administration to understand that as long as you’re using oil and gas, the best place to get it in terms of emissions is the US offshore.

The White House declined to comment.

Next big thing

Meanwhile, the Gulf of Mexico oil and gas industry remains at the cutting edge of technology. Beyond climate change, the Gulf faces competition from the oil fields off the coasts of Brazil, Guayana and Suriname, which attract a lot of hype from oil analysts who see South America. as the next big global oil and gas game.

The Gulf is still considered attractive due to the amount of infrastructure and expertise that has been established there over the past century. But at the same time, finding oil and gas there is becoming more and more difficult, requiring ever more powerful drilling rigs to reach the deepest depths of the Gulf.

Although production is expected to increase for a few more years, forecasts show that the amount of oil and gas from the Gulf will begin to decline by the early 2030s, Rostant said.

Editor-in-chief Paul Takahashi contributed to this report.

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