Zachary Fitzgerald
Deepwater energy production in the Gulf of Mexico should be more sustainable than shale production, which is welcome news to south Louisiana’s oil and gas industry, a Tulane University business professor said.
Eric Smith, professor of practice at Tulane’s A.B. Freeman School of Business and interim director of the Tulane Energy Institute, was guest speaker during a meeting of the Atchafalaya Chapter of the American Petroleum Institute at the Petroleum Club of Morgan City.
Tulane finance professor Peter Ricchiuti had been the scheduled speaker, but he was unable to attend the Tuesday meeting.
Deepwater oil and gas production in the Gulf of Mexico is growing but at the slowest rate seen in the recent past, while continental shelf production is decreasing, Smith said. Total U.S. rig count is starting to increase, and the number of oil rigs is rising faster than gas rigs, he said.
Though a boom of energy production in shale plays outside Louisiana has hurt the gulf region, there are still problems with shale production.
Among those problems is that operators haven’t returned the capital that they have borrowed. Issues with sustainability in shale production will be to the benefit of deepwater energy producers in the Gulf of Mexico, Smith said.
Smith expects deepwater oil production to continue to increase. Deepwater operators have discovered about five billion barrels of oil in the past few years.
“The Gulf of Mexico, especially for large companies both operators and service companies, remains one of the best places in the world for rebuilding and optimizing reserve portfolios,” Smith said.
However, those further developments will come at high production costs. Still, sticking to deepwater production and using available technology to access oil and gas is a good long-term plan, he said.
The midstream and downstream sectors of the industry “continue to see unparalleled growth in new capital investment,” Smith said.
Roughly $40 billion on oil- and gas-related infrastructure such as liquefied natural gas terminals and petrochemical plants is spent annually in Louisiana.
But continual issues with getting pipelines permitted in the state is highly detrimental to the state’s refineries and the rest of the downstream sector, Smith said.
“We’ve got to figure out a way to solve these pipeline permitting issues,” he said.
Most of the new drilling platforms coming online this year and next year in the gulf are deepwater projects that started three to 10 years ago. Significant amounts of discovered oil and prospective oil will be available going forward in the gulf.
Implementation of financial standards for operating in the Gulf of Mexico during former President Barack Obama’s administration has partly caused small independent operators to leave the gulf. Those new standards benefit large operators, he said.
One reason that shallow water production has become less attractive is due to natural gas being the main product coming out of shallow water. At the moment, natural gas in the gulf is having trouble competing with gas being extracted from shale elsewhere, he said.
The number of smaller boats working in the gulf has also declined, and that number won’t increase until overall drilling activity rises, he said.