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MMS ups gas reserves for Gulf’s deep shelf But is up to 55 trillion cubic feet sufficient to help offset declining U.S. production? Petroleum News
The U.S. Minerals Management Service has increased by nearly three fold its reserve estimate for natural gas in the deep horizons of the Gulf of Mexico’s continental shelf. But transforming those reserves into enough daily consumer volume to help offset the overall decline in U.S. domestic gas production is doubtful.
Based on revised calculations released to the public Nov. 19, MMS now believes the deep shelf contains 15 to 55 trillion cubic feet of natural gas reserves versus its 2002 estimate of 5 to 20 tcf, a hefty 175 percent increase. The resource examined by MMS is located below a geological depth of 15,000 feet.
The agency said it based the broadly ranging estimate partly on a “better understanding” of potential derived from recent deep discoveries that are producing, including Anadarko Petroleum’s Hickory, El Paso’s South Timbalier 204, and Shell’s Alex discoveries, as well as recent large gas discoveries JB Mountain and Mounds Point in South Marsh Island area, both McMoRan finds.
MMS said it also acquired seismic data and processed it using the latest technology “to improve imaging at increased sub-surface depths.” This evidently allowed the agency to outline and map “conceptual plays” using the information and incorporating gravity and magnetic data in MMS interpretations. New reserve estimate hopeful sign MMS Director Johnnie Burton called the new reserve estimate “a very hopeful sign of where additional natural gas supplies may be found for the American public,” noting that the U.S. Department of Energy is forecasting supply shortfalls. “It is imperative to find diverse sources of natural gas,” she said.
Burton said that while the importation of liquefied natural gas “will be very helpful,” the Gulf of Mexico “remains a key supply source” for the United States. The gulf currently makes up about 25 percent of the U.S. domestic gas supply, 80 percent of which comes from beneath the relatively shallow waters of the continental shelf.
The shelf is among the most heavily produced regions on the planet, which has forced explorers to pursue deeper plays at greater cost. To encourage more drilling, the federal government offers royalty suspension on the first 20 bcf of production for discoveries on new leases below 15,000 feet. The agency also is expected to adopt similar incentives for older leases. Total shelf production falling steadily The current incentive program appears to be working. MMS estimates that deep shelf gas production in 2002 climbed to 421 bcf from 368 bcf feet in 2001 and from 284 bcf in 2000.
But when compared to the overall steep decline rate on the shelf, potential gas reserves to be had below 15,000 feet begin to choke when it comes to making up the shortfall. From a peak of 4.80 tcf in 1996, total shelf production has steadily fallen to a current annual rate below 3.3 tcf.
Harvesting enough deep reserves to offset overall declines on the shelf would require a massive offshore drilling effort, particularly when considering the high decline rates of individual deep-gas wells. Earlier this year MMS projected that 45 new deep-gas wells completed in 2001 and 2002 would decline to half their peak rates “closer” to two years than the expected four years.
Offshore drilling in the gulf has actually decreased over the past year, despite higher commodity prices and increasing demand for energy. For the week ending Nov. 21, there were 97 offshore rigs at work in the gulf compared to 102 for the same weekly period last year, according to rig monitor Baker Hughes. Both deep shelf and deepwater reserves needed Chris Oynes, MMS regional director for the gulf, said it likely would require both deep shelf and deepwater reserves just to keep natural gas production flat long term in the gulf.
“The deep shelf would have to really unfold for it to significantly offset the production decline,” Oynes said. “But a one-two punch of the two areas has a pretty good chance of keeping our production level, despite the huge, huge decline in the shallow (waters) of the shelf.”
With federal waters of both the East and West coasts of the U.S. Lower 48 off limits to drilling, as well as high-potential government acreage in the Rocky Mountains, the prospect of finding sufficient domestic gas reserves to offset U.S. declines remains bleak. In recent years, gas production has slipped 2 to 3 percent annually, leading many to believe more imported LNG would be required to meet future demand in the U.S. Lehman Brothers raises gas production decline estimate In fact, Lehman Brothers Nov. 24 raised its U.S. gas production decline estimate for full-year 2003 to 2.8 percent from an earlier forecasted decline from 2.5 percent. Moreover, the firm said total U.S. gas supply this year would drop 5 percent, primarily because of the 2.8 percent decline U.S. production and a 10 percent decrease in Canadian imports.
Luis Giusti, former president of Venezuela’s state-owned oil company PDVSA and current senior advisor for the Center for Strategic & International Studies, said even a large infusion of gas from Alaska “will not solve the problem,” given the rate of increasing demand in the Lower 48.
“People are thinking that if the United States needs the gas, there’s no way to get it from themselves or Canada,” Giusti said Nov. 19 at Deloitte’s Second Annual Oil & Gas Conference in Houston, Texas. “There is a general perception that there will be a lot of LNG coming in. They are going to have to find the answers in LNG. It’s the only way.”
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