The Problem with Banking on Offshore

Deepwater offshore oil drilling is one of the greatest technological feats of the oil industry in the last fifty years.  Offshore drilling has also, over the long-term, been remarkably successful and safe.  Yet several recent problems with offshore production provide stark reminders of the risks confronting the energy companies that operate offshore.  The brief panic provoked by reports of a one mile by ten mile oil sheen last week near two of Shell’s platforms in the Gulf of Mexico, and Total’s evacuation last month of its Elgin field platforms in the North Sea due to a natural gas leak, elicited memories of the Deepwater Horizon disaster at BP’s Macondo well of just a couple years ago.  While neither event seems even remotely near the scale of the Macondo disaster which wreaked havoc upon the ecosystems of the Gulf, as well as the bottom-line of BP, they do provide two interesting notes of caution for those who believe that offshore drilling is the panacea to the United States’ energy needs.

The first is the fact that offshore oil platforms maintain a risk throughout their entire lifetime.  The Macondo well was an exploratory well in a field that had barely been tapped.  Shell’s Ursa and Mars fields, around which the sheen developed, are established—albeit young—wells [it should be noted that no blame for the oil sheen has been ascribed to Shell as the slick has begun dissipating].  But the really interesting factor in this situation is that Total’s Elgin well blew out during the decommissioning process.  The leak at its peak was releasing 7 million cubic feet of natural gas a day, although Total believes this level has decreased.  The fear of a catastrophic explosion shut down most production from the Elgin Field, which has produced between 130,000-250,000 barrels a day of oil during its lifetime.

The second problem is revealed by the difficulties in decommissioning Total’s Elgin well.  This is the fact that new challenges are constantly being discovered in the management of offshore fields.  It is speculated that the natural gas leak on Total’s platform, located 130 miles from Aberdeen, Scotland, is the result of an old reservoir leeching into the extraction system for a newer reservoir.  As energy firms attempt to close down old systems new problems such as this are being discovered.  This is an important consideration as more and more of the world’s oil production moves offshore.  With prices at such high levels, previously excessively expensive fields have now become viable.  The recently discovered fields off Brazil’s coast are a perfect example of this, as are the deposits which are being explored under the Arctic off the United States, Canada and Russia.  It is important to remember that the technological hurdles facing those who would exploit these fields are daunting and that the challenge will remain for the life of the field.

While BP’s massive blowout has comfortingly been ascribed to poor safety controls and lax oversight, the fact of the matter remains that as offshore drilling moves into deeper water and more dangerous areas, new problems such as the ones being confronted by Total will be discovered.  Safety and recovery equipment are being improved upon, especially in the wake of the Gulf of Mexico disaster, but it is a sobering thought that such a disaster as what is happening in the North Sea could occur so soon after the worst oil spill in history.  These problems are by no means insurmountable but if there was ever a time when shrill demands to drill everywhere immediately were unhelpful, it would be now.


2 Responses to The Problem with Banking on Offshore
  1. Amy Reply

    So…what happened with the oil sheen near the Shell well?

    • Jonathan Kuiken Reply

      The oil sheen appears to be dissipating. Shell has described it as an “orphan spill” meaning that they don’t know exactly where it came from. It could have been a minor leak on one of the platforms or even the dumping of some tainted bilge water from a passing tanker or ship. Their investigations are continuing but I’m not sure we’ll hear any more about it.

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