What the leak says about the search for oil

The question of what the Deepwater Horizon accident will mean for the future of oil extraction can probably be answered depending on one’s views. Jeff Rubin believes it could be a turning point for world oil supply; others are not so sure.

Either way, the disaster highlights the increasing intensity with which oil is being sought.

As the FT’s business commentator John Gapper writes on Thursday:

The blow-up is less a reminder of BP’s legacy than an example of the safety and environmental dangers that it and other oil “supermajors” face by drilling in such difficult spots. Risk-taking is not something from their past that they have overcome; it is what they must do.

The bleak reality is that, no matter who committed the original sin, oil has been gushing into the Gulf from 5,000ft beneath sea level for two weeks now with BP not being able to halt the flow. That does not say much for a company that flaunts its expertise in deep-water drilling to investors and governments.

It says even less for the wider industry, among which both BP and Transocean are considered to have good technical expertise. As Gapper writes, it’s the inherent nature of the task — ultra-deepwater drilling — that is so challenging.

And that is increasingly the story of 21st century oil production. Though some countries – mostly those with nationalised oil industries — still have easily accessible reserves, the oil majors are persuing ever more difficult sources, from tar sands to shale oil.

Another possible source of oil is the US Arctic Ocean, for which Shell is to begin drilling exploration wells this year. Marilyn Heiman, the US Arctic programme director of Pew Environment Group, believes neither the Minerals Management Service in its environmental assessment, nor Shell, have adequately considered how to deal with a large spill in the Arctic Ocean – which she says could be more difficult due to weather conditions.

The LA Times writes that Shell says a Deepwater Horizon-style blowout is unlikely, because the water depth is more like 150 feet than 5,000, and the well pressure is much lower:

“The barriers and contingencies we have in place and the significantly different characteristics of the wells we plan to drill here gives us tremendous confidence that the chances of a similar event taking place in the Alaska offshore is extremely remote,” said Curtis, the Shell spokesman.

In the “extremely unlikely” event of a blowout or spill, Shell would be ready to respond in one hour with an “unprecedented” three-tier system consisting of an on-site oil spill response fleet, near-shore barges and additional vessels and response teams staged across the North Slope, company officials said.

But the very “unprecedented” nature of those plans says something about the nature of incentives for energy companies as they seek out prospects in the few remaining corners of the world not closed off to them. The pickings that are left over from the national oil companies’ table are increasingly difficult to exploit.

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