Daily Archives: September 27, 2011
By Jim Adams
How could a bureaucratic bottleneck in the Gulf of Mexico cost the U.S. economy nearly $20 billion and wipe out hundreds of thousands of jobs as far away as Ohio, Pennsylvania and California? Unfortunately, with this White House administration, anything is possible.
President Obama recently announced yet another jobs initiative — knowing all the while that one very simple action on his part would indeed create new jobs, infuse federal and state budgets with billions of dollars, and make us less reliant on imports. But that didn’t happen.
On Oct. 12, 2010, Interior Secretary Ken Salazar said, “We’re open for business,” signaling that drilling for new oil in the Gulf of Mexico would resume. But, Mr. Salazar has an odd interpretation of the words “open for business.”
Eleven months after the Secretary’s announcement, drilling in the Gulf remains near a standstill. The government has used every stall tactic imaginable to delay permits and other administrative approvals that would help our economy and put hundreds of thousands back to work.
The Gulf Economic Survival Team (GEST) commissioned IHS Global Insight and IHS CERA Inc. to quantify the economic impacts of the government’s slow pace of permitting since lifting the moratorium. Their study revealed that the number of exploration plans and permit applications are on par with levels in 2009 through early 2010, clearly signaling the industry’s intent to return to full operations. Industry also has invested billions of dollars in well containment technology to stop a Macondo-size spill if it ever became necessary. So safety can no longer be blamed for permitting delays.
That leaves the Department of the Interior. The IHS study points to a backlog of project approvals. Despite their earnest efforts to process the growing stack of applications, regulators on the front line don’t appear to understand the new regulations that Washington D.C. has foisted upon them. The blame for this falls squarely on the shoulders of this Administration’s politically appointed bureaucrats, who know nothing of the complexities involved in safe and environmentally sound deepwater drilling. Naturally, they don’t let expertise or experience get in the way, they just pile on more regulations.
This politically minded bureaucracy comes at tremendous cost.
The number of people who depend on a thriving oil and gas industry is staggering. Another research study, by Quest Offshore Resources, found that energy production in the Gulf of Mexico employed 240,000 Americans in 2010. And not all of them worked directly for the oil and natural gas industry, as oil rigs need everything from steel pipes to IT support.
What’s more, the effects of the government’s continued foot-dragging isn’t limited to the Gulf. The study’s authors found that for every industry job tied to operations in the Gulf, three non-industry jobs are reliant in sectors such as manufacturing, construction and real estate. And for every three Gulf Coast workers, there’s one American employed elsewhere — in New York, Michigan, California, Oklahoma, Colorado, Pennsylvania, Ohio, Illinois and nearly every other state.
The Quest study also came to a distressing conclusion: Had the Administration truly lifted the moratorium last October, the industry would have created nearly 190,000 more jobs in the U.S. over a three-year period. That would have meant 8,500 additional jobs in California, where unemployment currently flirts with 12 percent; 10,000 more jobs in Pennsylvania and Ohio, manufacturing-dependent states; and in the President’s home state of Illinois, a total of 3,000 jobs.
Keeping Americans out of work. Denying struggling state and local governments billions of dollars in additional revenue. Making us more dependent on energy imports. Is this the change Mr. Obama says we can believe in?
Or can we only believe in shovel-ready jobs if they’re created by the alternative energy industry? Would we even be having this yearlong debate if solar energy producers contributed more than $12 billion a year in tax and royalty revenues to state and federal treasuries? What if hydro energy producers accounted for $44 billion of GDP? The only thing separating 190,000 Americans from a paycheck and states from more than $7 billion in local taxes is obvious: Political will.
President Obama talks about job growth, stimulating the economy and investing in innovation that will lead the way forward, but turns a blind eye to an obvious, if not practical, solution. Mr President: Lift your de facto moratorium on energy exploration in the Gulf of Mexico; business will safely do the rest.
Jim Adams is president and CEO of Offshore Marine Service Association, which represents the owners and operators of U.S. flag offshore service vessels and the shipyards and other businesses that support that industry.
- Collateral Damage: Lost Gulf Rigs from Obama Obstructionism (10 down, more to go?) (mb50.wordpress.com)
- Is Mexican Gulf Energy Production Recovering? (mb50.wordpress.com)
- Bernard L. Weinstein: US energy resources worth the investment (mb50.wordpress.com)
- Shell Perdido: The first full field subsea separation and pumping system in the Gulf of Mexico. (video) (mb50.wordpress.com)
- USA: Chevron Strikes Oil in Deepwater Gulf of Mexico (mb50.wordpress.com)
- Louisiana Remains on the Receiving End of Washington D.C.’s Worst Regulations (mb50.wordpress.com)
- Family firm still struggling, 18 months after Gulf oil spill (mb50.wordpress.com)
- Obama Doesn’t Care About Creating Jobs (mb50.wordpress.com)
- Rigged For Failure (mb50.wordpress.com)
- Push for permits in Gulf of Mexico (mb50.wordpress.com)
Unlike other state-controlled oil companies, such as Brazil’s Petrobras and Norway’s Statoil, Pemex is run like a government department. Its executives are hired and fired by Los Pinos, the Mexican White House.
Its budgets are imposed by Congress, such as those of the Public Health and Education departments. In fact, Pemex has its very own public health department, with some 12,000 doctors, nurses and administrators, to attend to the company’s staff and their families.
But the biggest difference of all is the state’s stranglehold on oil. Even with the extremely timid 2008 energy reform, Pemex has almost no way of releasing Mexico’s energy potential by inviting foreign companies to find and produce oil for the companies’ mutual benefit with upstream contracts that involve production sharing.
But now Suarez Coppel has launched a bid to free Pemex from these restraints. What is arguably the world’s most introverted large oil company aims to break out of its shell.
The main vehicle for the new strategy, though not the only one, is the awakening of Pemex’s near-dormant relationship with Repsol. The oil industries of both Mexico and Spain were recently electrified by the announcement of an alliance between Pemex and Spanish construction company Sacyr Vallehermosa, which set about the formation of a joint holding of 30% in Repsol. The alliance has been sharply criticized in both countries as it bids to reorganize the management of Repsol.
But whatever the motives of Sacyr Vallehermosa, a Pemex document–first circulated only internally and viewed by Platts, but last week released to the Madrid Stock Exchange–views moves via Repsol as a major element of the Mexican company’s internationalization strategy.
Also part of the strategy are plans to expand very modest sales of crude oil to China and India, to be aided by the establishment of a new Singapore office of PMI, the international trading office of Pemex. Sales to Asia will be an element of back to the future for Mexico’s commercial strategy. During the oil boom years of the 1980s, it refused to sell more than 50% of its crude to the US. Since that eminently political restriction was abolished, the proportion has increased to 85%, much more than is commercially sensible, Mexican officials say.
On upstream initiatives, the document says that, as a Repsol partner, Pemex could take part in deepwater projects in both US and Cuban waters in the Gulf of Mexico–a major departure for a company that has never drilled out of its home country.
In addition to sharing with Repsol the risks and potential rewards of deepwater drilling, such an alliance would provide valuable experience for Pemex engineers when the company itself drills in Mexico’s territorial waters in the deep Gulf. In private, senior Pemex officials say that if Repsol rejects its deepwater overture, they would find suitable alternative partners for the project.
Pemex, meanwhile, has a severe refining shortage. Half of all Mexico’s gasoline is imported. Plans for a $10 billion refinery near Mexico City are at an early stage. Pemex has looked at acquiring a US refinery to process Mexico’s Maya heavy crude; it already has one US plant in a joint venture with Shell at Deer Park near Houston. But Pemex executives say they have not found a suitable candidate.
Now, the Pemex document says, Repsol’s refining capacity in Spain and Peru could be leveraged for crude swaps, with Mexican crude being run in Europe and South America, and foreign crude imported for processing in Mexico. One potential commercial opportunity, the document adds, would be swaps of Mexican Maya crude for use in new coking units in Spain in exchange for Russian residual fuel to supply Pemex clients in the Gulf and optimize the Pemex refinery system.
The document also points to Repsol’s sound record in research and development. Certainly Pemex urgently needs know-how to face its greatest upstream challenges in Mexico, the huge but geologically very difficult onshore Chicontepec field and the deep waters of the Gulf under Mexican jurisdiction.
The document highlights Repsol’s geographical breadth. Repsol’s key markets are in Latin America and North Africa, and its main areas of growth are Brazil and the US, which now absorb over 80% of investment.
Could the strategy work, or will it be yet another false dawn for the Mexican company? For a political animal such as Pemex, the outcome of next year’s presidential election in Mexico could hold the key.
A new government could fully back the initiative, or it could halt it dead in its tracks. For now, the debate on the oil industry has gone under the political radar amid fear and acrimony about the nation’s bloody war on drugs and the future of the umbilical cord to the unsteady US economy.–Ronald Buchanan in Mexico City
- Mexican Government Under Assault From Drug Cartels, Washington Yawns (mb50.wordpress.com)
- Mexican oil: Brimming with potential, stuck in the mud (money.cnn.com)
- US experts eye Cuba oil plans after BP spill (mb50.wordpress.com)
- Chinese-built oil rig setting sail for Cuban waters (mb50.wordpress.com)
(Westshore Shipbrokers AS)- Following in Petrobras’ footsteps, Shell Brasil is about to embark on its > 2,000m water depth portfolio. Drilling will continue into the second quarter of 2012 in the Santos Basin. On the one hand, it’s just another oil major doing something not much different from other operations in the likes of the US Gulf of Mexico. But put into the Brazilian context, it’s much more than that, it’s a milestone for the nation in nearing its offshore exploration and production ambitions, but why is that?
Deep water exploration characterizes the offshore industry in Brazil yet this is actually only the second time an IOC will be involved in an exploratory campaign that breaks the 2,000m water depth threshold, and at quite a distance from shore. Moreover this is being done with a moored semisubmersible and on a pre-salt prospect. The challenges involved with such a combination are huge and require a complex logistical strategy to ensure that when the rig is on location and ready to spud, not the smallest detail is left behind. However we are unlikely to see the last of this type of drilling scenario, Petrobras and other lOCs will follow.
The next piece in the puzzle is shore-based infrastructure, i.e. the demand for better port facilities and plants, berthing facilities which are offshore appropriate and more of them. It all plays into a cycle – the further the offshore operations are from land, the larger the drilling unit required. Bigger drilling units need bigger vessels to support it; in turn they need larger and better equipped ports to support them. The bigger ports need larger fluid and dry bulk plants which need more trucks for transportation and so on. It all boils down to infrastructure and the very pressing need to get it up to the standard needed.,
The larger drilling units in particular need more materials like drilling and completion fluids and this will drive the change in demand for logistics resources – including the demand for offshore support vessels. In addition, the shortage of adequate port infrastructure means these vessels need to provide storage for the materials in addition to their transport function.
This move towards increased capacity per vessel, as opposed to increased number of vessels is somewhat new. Although Brazil has dominated the global UDW scene, it was only about five years ago that Petrobras started searching for PSVs > 3.000 dwt. What we see now is a preference for vessels up to 4.500 dwt – and this will only increase. Moreover, the lOCs are on the same path. That being said, we are not predicting the demise of the smaller PSV in the Brazilian market, far from it. The future for PSVs up to 3.000 dwt seems steady, slightly increased for those around 3.000 dwt but the real growth is in the larger segment of the market – vessels of 4,500 dwt and above.
The future is less easy to predict for the AHTS. Reason being, although the demand is related to the water depth, it also depends on the type of rig – moored or DP. Most operations carried out in water depths of 1.000 to 2,000 meters in Brazil have been done with moored semis – in excess of 80%. The AHTSs in this niche have ranged between 160 tbp to 195 tbp.
For operations in deeper water, larger vessels are needed. Petrobras for one has chartered several vessels in the 21,000 class and Shell Brasil has awarded contracts to two Maersk L class vessels (260 tbp). Therefore, although deeper operations may at first sight be perceived as a predominantly DP-rig market. In Brazil this is not the full story. There is a balance between DP and moored units in the market and the country counts on the presence of a number of mooring specialists working in such water depths. We expect the demand in the AHTS market to remain strong for 160tbp- 195tbp, perhaps increase slightly. And for the >200tbp we expect to see a steep increase, mainly due to the fact that the activity is new and therefore the number of vessels on hire at the moment is low.
Written by Westshore Shipbrokers AS‘ Staff
- Westshore Shipbrokers: A Closer Look at Vessel Scrapping and Attrition in the OSV Market (mb50.wordpress.com)
- Re-inventing subsea intervention to keep economics above water (mb50.wordpress.com)
- Bay Shipbuilding Begins Construction on Tidewater PSV’s (gcaptain.com)
- New Oil Finds Around the Globe: Will the U.S. Capitalize on Its Oil Resources? (mb50.wordpress.com)
- Brazil Builds $127 Billion “Offshore City” to Harvest Oil in the Deep Sea (treehugger.com)
- USA: Harvey Gulf BOD Approves Construction of LNG-Fueled Offshore Supply Vessels (mb50.wordpress.com)
- India: Cochin Shipyard Names Two Platform Supply Vessels (mb50.wordpress.com)
- GulfMark orders three PSV’s for North Sea market (gcaptain.com)
- Lloyd’s Register unveils new program tailor-made for deepwater drilling (gcaptain.com)