As the world's largest consumer of oil, gas, and electricity, the US has deemed developing domestic energy sources to reduce reliance on imports and ensure security of supply a major priority. As a consequence, the country is seeking to diversify its energy supplies, creating a range of long-term and large-scale opportunities at every stage of the supply chain.
These are some of the key trends identified by EIC Consult's "USA Country Overview" report published in February 2012, which provides a comprehensive analysis of contemporary developments in the US energy sector. It also looks at where the key hotspots of activity can be found in the upstream sector today.
In the past few years, the US has undergone a seismic shift in the energy market. The latest Consult USA Report highlights several key developments that are shaping the marketplace.
Recovery of offshore deepwater drilling in Gulf of Mexico
Upstream developments in the US have been revolutionized by new technology. Firstly, the report shows that offshore, spar platforms, and semi-submersible drilling rigs have allowed oil and gas production in federal Outer Continental Shelf (OCS) waters to move into far greater depths at more than 1,500 m (5,000 ft). Indeed, by 2009 ultra-deepwater oil production in these depths had overtaken oil production in shallow waters, with 84% of proven federal offshore oil and gas reserves residing in more than 300 m (900 ft) water depth.
E&P is currently centered on the federal OCS areas of the Gulf of Mexico (GoM) due to ongoing drilling moratoriums in the Atlantic and Pacific oceans. However, extensive pipeline infrastructure has restricted the use of FPSO units, with only one planned for 2012.
New federal bureaus responsible for energy operations were inaugurated following the Macondo oil spill in 2010, bringing comprehensive new regulations to the offshore sector. These new permitting regulations, which came into effect in October 2010, require higher standards regarding well design, casing, and cementing.
Operators have adjusted well to the new framework. With more than 130 new well permits having been granted since the new regulations came into force, offshore developments are gaining momentum and steadily recovering toward the levels seen prior to the Macondo disaster.
The report finds that currently there are 5,981 active leases in the GoM. Key project developments include Shell's Cardamom oil field, the first deepwater plan to be cleared after the Macondo disaster; Chevron's Big Foot deepwater oil field; BP's Mad Dog oil and gas field; Anadarko's Lucius oil and gas field, where appraisal drilling took place in July 2011; and future projects such as E
onMobil and Anadarko's Hadrian oil and gas field, where first production is expected to begin in 2014.
The growth of shale gas
Colorado, Alaska, Texas, and Pennsylvania join the GoM as key US hotspots for resource development. (Charts courtesy of EIC; Source: EICDataStream)
Since the development of onshore hydraulic fracturing and horizontal drilling, commercial production of shale oil and gas has grown on an enormous scale. The report highlights that a particular focus is the development of liquids-rich plays that, due to low gas prices and high oil prices, are set to enjoy years of growth. Daily production from shale gas increased from 1 Bcf/d in 2003 to almost 20 Bcf/d by mid-2011 and could reach 30 Bcf/d by 2020.
In the past five years alone, the innovative application of technologies for tapping gas found in shale and other types of rock has enabled a 20% rise in US natural gas production and restored US gas output to levels not seen since its peak in the 1970s.
As of 2010, there were at least 22 major shale plays in the US spread over more than 20 states. The oil-rich Bakken in North Dakota and the Texas Eagle Ford plays were identified as the center of many operators' long-term shale plans. The Bakken in particular is experiencing rapid development on a prolific scale. The US Geological Survey estimates that it holds 3.65 Bbbl of recoverable crude oil in addition to around 2 Tcf. This development, coupled with North Dakota's favorable tax system, has delivered a monumental annual increase in the state's oil production, with 2010 production up more than 40% over 2009 figures.
Intensive drilling is driving up demand for development and production services, with operators on the lookout for new technologies to maximize output of wells with notoriously high decline rates. Despite much public opposition, the comprehensive or prohibitive regulation of shale gas is unlikely due to the number of jobs created and taxes generated.
As more shale formations are explored and enter commercial production, estimates of technically and economically recoverable shale resources will continue to rise. Elsewhere, conventional upstream developments in the US have benefited from this newly developed recovery technology. EOR has successfully boosted production in the Permian basin, and COinjection is now seeing more widespread use in raising production in older fields across the states.
LNG import terminals shift to export facilities
The increase in shale gas development also has led to existing LNG import terminals being converted to operate as export facilities, according to the report. By July 2011, LNG imports were down 44% compared with the same time in 2010, and Reuters has estimated imports were at the lowest monthly level since December 2002. At the same time, however, exports almost doubled from 33.355 Bcf in 2009 to 64.793 Bcf in 2010 as a result of the re-exportation of LNG imports.
Deepwater and ultra-deepwater projects account for an increasing amount of production from the US GoM. (Source: EIC Consult - US Project Opportunities)
However, the future of LNG remains uncertain as the market for US exports is far from secure. Furthermore, the proposed export terminals are located on the East Coast, lacking a direct route to the most profitable Asian markets. It also should be noted that for US natural gas to be competitive in the global LNG market, domestic prices are required to remain moderately low for the 25-year life cycle of an export project.
Lastly, natural gas storage capacity is increasing to accommodate shale output, with many new storage facilities entering construction.
Key hotspots of activit
y So where are most project developments taking place? The EIC's project database, EICDataStream, which is tracking more than 9,000 active and future projects across the global energy industry, shows that the key hotspots of activity in the upstream sector can be found in the GoM as well as in the states of Texas, Colorado, Alaska, and Pennsylvania. The chart above shows the number and potential investment value of active and future upstream projects in these regions, with the GoM leading the way with 71 projects with a combined value of US $54 billion.
The future
With oil prices continuing to rise, the US is clearly focused on reducing imports and developing domestic energy resources. Diversifying energy sources and expanding production also are seen as key priorities. With industry innovation driving new techniques to extract resources from more challenging environments, there are plenty of opportunities across the whole supply chain for the long-term future.
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