Oil production hit for decades after BP spill

Sunday, May 9, 2010
By Paul Martin

A deep sea drilling moratorium will leave global supplies depleted just as demand gets greater

By David Strahan
IndependentUK
Sunday, 9 May 2010

Even as the first oil from BP’s stricken Macondo well in the US Gulf of Mexico washed ashore this weekend, and as the clamour mounts, experts claim the slick will be nothing like as catastrophic as forecast – for either the environment or the oil industry. However, some analysts warn the accident could still seriously hurt global oil supply later this decade.

The fate of the Louisiana coastline is in the hands of BP engineers working to place a cofferdam, or 100 tonne steel and concrete funnel, over the worst leaks, using remote-controlled submarines a mile down on the seabed. If the operation succeeds early next week, as BP hopes, it should capture around 85 per cent of the leaking oil, sharply reducing the potential impact. “Once they have the cofferdam in place they’re almost home and dry”, says Dr Simon Boxall, an oil spill expert from the University of Southampton, “if they succeed, this won’t even make it into the top 100 oil spills by volume”.

Around 100,000 barrels, or 4.2 million gallons, have leaked from pipes damaged when the Deepwater Horizon rig exploded and sank last month, less than half the amount spilled in the Exxon Valdez disaster in 1989. But if the cofferdam fails, the impact would be much worse. BP, led by chief executive Tony Haywood (pictured) is already drilling a second well to intercept and plug the first just above the oil field itself, 13,000ft below the seabed, though that might take three months. If so the spill could reach 450,000 barrels, just under twice the Exxon Valdez. But even that would only rank in the top 50 spills. “It could clearly do a lot of damage,” says Dr Boxall, “but when people claim this is the oil industry’s Chernobyl, it’s really nothing like it”.

The rising backlash against deepwater drilling – anything over 500 meters, far too deep for divers to work should anything go wrong – is unlikely to damage the industry as much as the noise on Capitol Hill would suggest, because it is too vital to the oil supply. According to analysts Douglas Westwood, deepwater oil production has soared from under two million barrels per day in 2000 to eight mb/d in 2010, almost 10 per cent of global consumption, and must rise further as onshore and shallow offshore production declines. “They can’t ban deepwater because the industry has nowhere else to go”, says chairman John Westwood. Last year, 500 deepwater wells were drilled, costing up to $100m each, and Douglas Westwood predicts $167bn will be spent on deepwater development to 2014.

Deepwater drilling has provided substantial discoveries recently, such as BP’s Tiber field off Brazil, thought to contain some three billion barrels of oil. But such is the industry’s desperation it will also chase tiny fields at depths unheard of a decade ago. The Macondo field probably contains less than 50 million barrels – an oilfield minnow. A BP spokesman admitted “the easy stuff is done first. We’re now on to the stuff that is technically, politically or economically difficult.”

If a ban is unlikely, deepwater drilling will be far more tightly regulated, as happened after the Piper Alpha disaster in 1988. Then British North Sea production slumped for several years as safety equipment and procedures were upgraded, before recovering. The difference is that many forecasters now predict a global oil supply crunch by the middle of this decade, so any pause in US deepwater drilling could have magnified consequences.

The analysts Newedge USA say if the moratorium on new drilling, announced by President Barack Obama after the accident drags on, oil supply could suffer a shortfall of up to one mb/d by 2016 to 2018. Another analyst said: “They wouldn’t be able to offset depletion with new drilling”. With forecasters predicting peak oil in 2015, this could only make matters worse.

If BP’s cofferdam succeeds, it will still be neck deep in litigation for decades to come, and industry costs will rise, but hostility to deepwater drilling will soon be overshadowed.

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