Oil supply and demand are back in balance with the edge going to demand. Higher oil and gas prices over a prolonged period are the clear result, and the trend will soon begin impacting the development of new resources in North America's offshore theaters. Environmental concerns have shifted use patterns to favor natural gas and are leading to higher natural gas demand for electrical power generation.
General economic activity continues strong after the longest economic expansion in US history. One great benefit of this growth is that both Canadian and Mexican economies are improving as well. The major question is the length of the growth trend. At this point, there is no limit is sight. All this economic growth needs an expanding supply of petroleum.
The successful start-up of Hibernia and the completion of the Sable Island pipeline has opened a new era for Canada's East Coast. It has become a new oil and gas theater. The major infrastructure created by the building of these structures allows the satellite expansion of production systems out into the Atlantic with a firm link to onshore markets. Canada's eastern shore could soon become a mini-Gulf of Mexico.
Like the Gulf, eastern Canada holds un tapped oil-riches that will be developed over the next few decades. Only time will tell how prolific its resources are and to what depths they extend. Very old tectonically folded rocks underlie the eastern coast of the continent. These form some major structures at depth, which need to be tested.
Methane hydrates are also a potential new source for gas in shallower sediments.
Of greater importance for explorers is that this new productive area confirms the presence of significant hydrocarbon resources on the Atlantic side of the continent. A case can be made for extension of industry activity north along Canada's Labrador coast, into the Gulf of St. Lawrence to the west, and south into US waters at some future date. West Greenland's Fylla project will shed light on this potential after the drilling of a test well later this year.
US demand for hydrocarbons continues to grow. Imports now exceed 50% of petroleum volumes consumed. Newly discovered fields are being brought into production immediately to meet demand and capture the value of higher oil and gas prices.
The problem in the US is that many fields are well past their prime. New areas are needed to search for new large fields. The US Gulf of Mexico is the only region adding significant new large fields.
At the present time, the US East Coast, West Coast, and Alaskan North Slope are under moratoria. They cannot be used for oil and gas exploration. After much wrangling by industry, the US government is finally opening up an area in the eastern Gulf of Mexico. The first lease sale for this new area will be in 2001. The political expedience of moratoria places the long-term viability of US domestic energy supply at risk. The following is a regional assessment of opportunities offshore the US:
- East Coast: Currently off-limits, the US East Coast holds the potential to supply major natural gas and possibly oil to that heavily populated area. Recent USGS estimates tout large reserves of unconventional methane hydrates as a future energy source. What is most interesting and frustrating for the explorer is that the conventional oil and gas potential of the region remains untested, yet Canada is moving on potential reserves north of the offshore border.
- Alaska: Often touted as the US' final frontier, the oil resources discovered in the 1970s are now in decline. Fortunately, the gas resources were preserved and can be brought to market once pipeline capacity is developed. That is a few years away, but will be needed soon to feed the continent's hunger for energy. Arctic exploration of the Barents Sea has been limited due to the high economic cost of operations and lower oil prices over the last 10-plus years. This may now be changing enough to support new efforts to develop Arctic Ocean waters. Companies will likely wait until prices remain firm for some time before committing to expensive new arctic efforts. Other offshore areas, the Chukchi Sea and areas adjacent to the Aleutian Island chain are in a similar state. The small market in Alaska is not strong enough to encourage exploration, so the acreage lies fallow. Once a pipeline connection is extended south to connect Alaska to the continent's larger system these areas will gain more attention.
- Gulf of Mexico: The US Gulf continues to produce strongly and prolifically, a situation that may be deceptive for US consumers and an indirect inducement for the political community to avoid expanding into other US coastal areas. The US Gulf was developed by water depth stages, and the same process continues today as floaters and drillships extend their capacity well beyond 6,000 ft depths. New targets lie deeper in the sediment as well as in deeper water.
Once a means of safely and economically handling drilling fluid through a lighter or smaller riser, or with riserless systems, deeper targets will be tapped, regardless of the water depth. Unlike many other world basins, the US Gulf of Mexico is only now being examined at the basement level, where studies indicate rock structures appear to control the location of oil generation and its migration paths (see related article in this issue).
Explorers have found and developed many new trends over time, the latest being the deepwater submarine fans. Over the next few years this activity will likely identify several separate deepwater plays in and around buried structures. An interesting aside is that the
submarine fans follow the bathymetric lows and are deposited between and around bottom structures. The character of exploration changes as explorers move from the shelf to deeper waters.
Salt features and salt evolution over time continue to be major exploration topics. Significant oil resources lie beneath and around these bodies. Whole worlds of untapped reserves are now within reach due to improved imaging technology. As a result, the US Gulf of Mexico will remain active for decades to come.
Perhaps the "hole-card" for North American energy is Mexico's deepwater Gulf of Mexico. It is far less explored and more lightly tested than the northern region, but holds significant future potential for the growth of the Mexican economy and the oil supply available to the broader North American market.
Like the northern Gulf of Mexico, the southern region holds thick sediment sections with many oil and gas traps. It has not been developed as intensively as the northern Gulf of Mexico due to state control of development through Pemex.
Assuming that Mexico's economic expansion continues, Pemex will need to expand its investment or open its waters to third party activity in order to meet future energy demands. Best in class technology is readily available, and so is deepwater experience.
Oil exports from South America, notably Venezuela and Colombia, appear to be secure and constant for the present. There is still no trade in LNG and no natural gas pipeline between the two regions. However, plans are being floated for a 3,000 mile, $3 billion gas pipeline connection to link the continents and discussions continue on the import of LNG from Latin American fields. Assuming economic growth continues and the upward trend in natural gas use is sustained, such a link would be of significant benefit for both continents.
The realm of opportunities for offshore explorers is strong in North America. Though total available leasing territory is limited in scope due to government restrictions, the areas currently available hold significant promise for the discovery of new reserves to feed the demands of North America's growing economies.
Looking forward, continued economic growth will require that more areas be opened for exploration. The need for oil and gas resources will force governments to recognize the economic realities and open new offshore lands for exploration.