All gimmicks, all the time – the offshore drilling fraud (Part 2)

Posted by AzBlueMeanie:

In an earlier post, I explained how the obstructionist Republicans have blocked energy legislation in Congress that would have actually lowered the price of gas at the pump, and marginally increased domestic oil and gas supplies. Blog For Arizona: All gimmicks, all the time – the offshore drilling fraud

For the sake of argument, let’s assume the obstructionist Republicans currently throwing a temper tantrum actually get their way.  How much offshore oil are we actually talking about? 

"About 86 billion barrels of additional oil may lie offshore, according to the US government’s Energy Information Administration," and then continued: "Of that amount, about 18 billion barrels are subject to the moratorium." Blog For Arizona: All gimmicks, all the time – the offshore drilling fraud  That’s it.  A drop in the barrel, so to speak, in the world supply of oil on the global market.

Moreover, even if the offshore moratorium were lifted today, the oil companies simply do not have the oil drilling ships and offshore rigs to drill for the oil, or skilled employees to man them (despite what the howling mad attack dogs of talk radio and the McMedia misrepresent to the public daily).

The global shortage of drill-ships has created a critical bottleneck.  The world’s existing drill-ships are booked solid for the next five years. Some oil companies have been forced to postpone exploration while waiting for a drilling rig, executives and analysts said.  Dearth of Deep-Sea Drilling Ships Hinders Offshore Oil Search – NYTimes.com

“The crunch on rigs is everywhere,” said Alberto Guimaraes, a senior executive at Petrobras, the Brazilian oil company that has discovered some of the most promising offshore oil but has been unable to get at it.

“Almost 100 percent of the oil companies are constrained in their investment program because there is no rig available,” he said.

As a result, drilling costs for some of the newest deepwater rigs in the Gulf of Mexico — the nation’s top source of domestic oil and natural gas supplies — have reached about $600,000 a day, compared with $150,000 a day in 2002.

The most recent report (8/8/08) from ODS-Petrodata, a firm that tracks drilling rigs, ODS-Petrodata | Weekly Rig Count states that "In the U.S. Gulf of Mexico, the number of rigs under contract slipped by two after two jackup contracts ended, while total fleet size was unchanged.  With 103 of 123 mobile offshore drilling rigs under contract this week, fleet utilization in the region stands at 83.7 percent."  With 630 out of 694 rigs available under contract (worldwide), offshore rig fleet utilization is 90.8 percent."  This is maximum utilization; there is little spare capacity.

ODS-Petrodata does not provide data on the age or condition (e.g., down for repairs) of the the 20 U.S. rigs not currently under contract, or whether these rigs may be under a right-of-reservation under a contract.

Brazil stunned the oil world last November when it announced the discovery of a vast oil field 200 miles south of Rio de Janeiro, turning the country’s deep blue waters into the world’s most exciting oil frontier. Petrobras, whose full name is Petróleo Brasileiro, is expected to drive much of the growth in the booming oil market. Petrobras currently has only three rigs capable of drilling in waters that exceed 6,500 feet, like the sites of the new fields. The company has outlined an aggressive program to increase its drilling capacity, and plans to contract or build 69 deepwater drill-ships by 2017. Dearth of Deep-Sea Drilling Ships Hinders Offshore Oil Search – NYTimes.com

Robert L. Long, the chief executive officer of Transocean, the world’s largest drilling company, said he has nine deepwater rigs under construction, eight of which are already under contract for periods ranging from four to seven years once they leave the shipyards. He expects to receive the ships between the beginning of 2009 and the end of 2010.

Transocean believes the deepwater market will continue to be constrained until at least 2012. Over three-quarters of the drill-ships currently under construction have already been contracted to oil companies eager to benefit from triple-digit oil prices, Mr. Long said. Dearth of Deep-Sea Drilling Ships Hinders Offshore Oil Search – NYTimes.com

John Fredriksen, the owner of the oil service company Seadrill Ltd., has amassed an array of state-of-the-art oil rigs capable of drilling in the world’s deepest oceans, e.g., the deep waters of the Gulf of Mexico and offshore Brazil and West Africa, oil’s hottest real estate. But the rigs that can drill there are in short supply. Oil Tankers: April 2008 (Billionaire Cashes In On Offshore Oil Rush – Wall Street Journal, April 1, 2008).

Mr. Fredriksen sees years of strong demand ahead. The amount of oil pumped from deep-water fields will nearly double between 2005 and 2010 to about 11 million barrels a day, according to the U.S. Energy Information Administration. Douglas-Westwood, a consulting firm, says capital spending on deep-water oil will rise to $25 billion annually by 2012, nearly double the figure for 2003.

Yet there are only 39 rigs in the world capable of drilling in ultradeep water. Seadrill has four of them, with eight more under construction. While there are older companies that are bigger than Seadrill, few have such a modern fleet.

That gives Mr. Fredriksen enormous pricing power. His units are in such demand he can charge major oil companies nearly $600,000 a day to use them.

In other words, the "hot" oil fields for exploration and drilling are deep-water oil fields off the coasts of Brazil, Angola Oil Tankers: April 2008, and in the Gulf of Mexico, and potential fields under exploration in the South China Sea, off the shore of India, and around the coast of Australia. Dearth of Deep-Sea Drilling Ships Hinders Offshore Oil Search – NYTimes.com

The continental shelf of the U.S. is simply not among the top priorities of the oil companies for exploration and drilling within the global market for oil. With oil drilling ships and oil rigs in extremely short supply, U.S. offshore oil production, if any, will have to move to the back of a very long line.

So when Republicans and their allies in the McMedia tell you that offshore U.S. oil can be produced quickly and will reduce the price of gas at the pump – they are lying. Don’t be fooled by these lies.  Also, there is no guarantee that the oil companies will ever find it financially prudent or profitable to explore and produce oil from the U.S. continental shelf.

U.S. shipyards also will not profit financially from all of the new ships and oil rigs being contracted for by the oil companies.  The "global economy" has passed us by.  "Most new orders for drill-ships have gone to Asian shipyards. Companies in Singapore and China have benefited, but South Korea’s big three shipbuilders — Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Hyundai Heavy Industries — have gotten the bulk of orders for the most complex and expensive types of vessels."  Dearth of Deep-Sea Drilling Ships Hinders Offshore Oil Search – NYTimes.com 

According to Energycurrent.com Offshore Oil & Gas News: Floaters to remain in short supply: Proof of climbing demand can be seen in the number of orders for newbuild floating rigs that have been placed with shipyards. At the moment, 93 semisubmersibles and drillships capable of drilling in over 3,000 feet (914 m) of water are on order or under construction at this time. Five more floaters rated for shallower water depths are in the works.