It’s often said that the offshore Gulf of Mexico is a different animal than its onshore counterparts, especially shale and tight-oil plays like the Permian and the Bakken. Decisions to invest in new production in the GOM aren’t based on crude oil demand and price forecast for the next two or three years; they’re based on expectations for the next two or three decades. Well, 30 years from now will be 2051, a year after Shell and a number of other energy companies have pledged to achieve “net-zero” carbon emissions. What does decarbonization mean for future development in the offshore Gulf, where the upfront capital costs are enormous and wells can be prolific producers for many, many years. In today’s blog, we discuss the final investment decision (FID) on Shell’s Whale project in the western Gulf of Mexico and the prospects for further development in the GOM.
Producing crude oil and natural gas in waters thousands of feet deep requires an extraordinary level of skill — and courage too. The challenges only increase during hurricane season, when everyone working in the offshore Gulf of Mexico keeps an eye on the weather in Hurricane Alley, that belt of warm Atlantic waters between Africa and the Caribbean where tropical depressions gain strength to form tropical storms and hurricanes. A number of these storms have had profound effects on GOM production (blue line in Figure 1), including hurricanes Katrina and Rita in 2005 (dashed red oval), Gustav and Ike in 2008 (dashed green oval), and more recently, Hurricane Barry in 2019 (dashed purple oval) and the trio of Sally, Delta, and Zeta last fall (dashed orange oval) which we covered at the time in You Really Got Me and more recently in Ridin’ the Storms Out. It could be argued, though, that the event that had the biggest impact on Gulf production — so far, at least — wasn’t a storm; it was the Macondo disaster in April 2010, when the Deepwater Horizon oil rig exploded and sank, resulting in the loss of 11 lives and the release of more than 4 MMbbl of crude oil over 87 days. In response to the disaster, a six-month moratorium on deepwater offshore drilling was declared and, as shown in Figure 1, caused GOM production to sag (dashed yellow oval). It took more than five years for output to recover to pre-Macondo levels.
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