The World Can't Live Without Deepwater Oil

Regardless of the environmental and political fallout from BP's (BP) Deepwater Horizon drill-rig disaster, the larger context remains straightforward: The world, and the U.S., increasingly depends on oil and gas produced by deepwater offshore wells. As existing onshore fields keep declining, the need to develop these offshore fields and so-called unconventional oil deposits will only increase.

A report issued in April by United States Joint Forces Command (USJFCOM) created a splash by confirming that at least some U.S. military planners have accepted the key premise of "Peak Oil" as a basis for strategic planning. This premise holds that as conventional oil fields are depleted, new sources of oil or new technologies won't fully replace the lost capacity. As a result, global oil production will peak and then slowly decline, even as new production and technologies are brought on-line.

A common misunderstanding of Peak Oil is that its proponents are claiming that "we're running out of oil." More accurately, Peak Oil foresees a point of maximum production, and the possibility that demand for oil will greatly exceed the available supply. In that scenario, the price of oil would rise, perhaps significantly.

The USJFCOM planners anticipate not just price increases but shortages, and thus the possibility of conflict as nations jockey to control remaining oil reserves. Such long-term thinking about the decline of current oil resources isn't new. U.S. government agency reports such as Strategic Significance of America's Oil Shale Resource have been circulating for years.

The USJFCOM report contained a chart (a version of which is presented here) published by the International Energy Agency, an intergovernmental organization that acts as energy policy adviser to its mostly industrial-economy member nations.

The chart's most striking feature is the rapid decline in existing capacities of large, mature fields such as Cantarell in Mexico, which after yielding 11 billion barrels of oil has seen production fall from 2 million barrels per day (BPD) to 770,000 BPD.

Enhanced recovery technologies such as nitrogen injection are expected to pick up the slack by retrieving more oil from older fields, and unconventional sources such as Canadian oil-sand deposits will add modestly to global production. Industry sources estimate Canadian oil sands will produce 3 million barrels per day by 2015 -- a welcome quantity but small compared to the current global output of about 85 million BPD.

To put those numbers in perspective, the U.S. consumes about 18.7 million BPD and produces 5.3 million BPD domestically.

Mind-Boggling Logistics

The majority of new production is assumed to come from the development of existing reserves, such as the offshore and deepwater deposits in the Gulf of Mexico, which currently yield 30% of America's oil production. Deepwater wells like the ill-fated Deepwater Horizon made up 15% of total U.S. production in 2002 and are expected to rise to 30% of total production by 2015.

New deepwater production of known reserves is supposed to provide up to 40 million BPD of global production -- a staggering amount, given the monumental capital, engineering and expertise that must be brought to bear to bring oil up from miles below the ocean floor.

The logistical and engineering challenges of deepwater drilling are mind-boggling. The Deepwater Horizon rig -- a behemoth the length of two football fields -- had drilled the deepest known oil well in the Gulf of Mexico last September, through one mile of seawater to the ocean floor, and then six miles down to the oil deposit. (A chart of the entire Macondo well can be found on The Oil Drum, a website devoted to oil/gas industry content and discussion). Known as Tiber, this oilfield is expected to produce in its lifetime some 3 billion barrels of oil. Sounds impressive, but it's less than six months of current U.S. consumption.

The geological pressures are intense at these depths. The deep oil and gas are both superheated and supercompressed, and they can erupt through the wellhead with explosive force.

More Prudent Management Is Needed

Though the congressional panel convened to investigate the disaster has gathered testimony that casts doubt on many of the safety features intended to protect the well from just this sort of leakage, the offshore oil industry had compiled a remarkable safety record over the past decade. Previously, the largest spill was 8,000 barrels in 2005.

The global economy runs on oil, and U.S. military and civilian leaders are well aware of the strategic value of America's domestic petroleum reserves. Prudent, safe management of those resources becomes even more important as oil exploration demands extremes of engineering.