Pipelines and shuttle tankers linked to floating production, storage, and offloading (FPSO) vessels are the choices in moving offshore oil and gas to shore. Worldwide, operators select the transport system that best fits their development scheme and economics. In the Gulf of Mexico, operators are limited to pipelines and the field economics imposed by their limitations. FPSO acceptance remains under review by the US Department of the Interior's Minerals Management Service (MMS) and a decision is expected in early 2001.
Pipelines are the most common and accepted method of oil and gas transportation. A pipeline infrastructure, such as exists in the Gulf of Mexico, allows economic tie-in of oil and gas production, especially where associated gas exists in volumes that cannot be injected or flared. With greater water depths and distance to shore, or at least the nearest tie-in point on the shelf or slope, transport economics become a critical element in development decision-making. The cost of installing pipelines in the deepwater Gulf of Mexico becomes astronomically high in depths beyond 3,000-4,000 ft. Factors in the cost profile include the following:
- Pipe wall becomes very robust, taxing both pipe mills and the size of a lay spread, and sometimes limiting the size of pipe.
- Second lines to route gas separately from oil, or to create pigging loops, change the economics and reduce development choices.
- Seabed topography and relief, along with soil support and consistency, impose limitations on pipeline routing choices or make a route much longer or in greater need of support spans and anchoring devices than might be otherwise.
- The chemistry of production and flow conditions determines the degree and type of wellhead protection and temperature protection (active or passive) along the pipeline.
All of these measures drive costs of transport, and indirectly determine or limit the type of development system, and in deepwater they escalate transport costs by great orders of magnitude.
Decision by 2001
Last year, the MMS issued an Environmental Impact Statement (EIS) on the use of FPSOs in the Gulf of Mexico, funded 100% by the large industry consortium, DeepStar. The MMS plans to approve a draft of the EIS this month and release it to the public. Through July and August, the MMS will hold public hearings on the topic and release the final EIS in November. A record of decision would then be submitted in January of next year. There are three alternatives considered in the EIS:
- Approval of the general concept using FPSOs in deepwater areas of the Central and Western Gulf of Mexico
- Approval of the general concept with geographic and operational restrictions or conditions
- The general concept is neither approved nor disapproved.
If the concept is approved, companies could begin submitting applications for use by the first quarter of next year. Each application will undergo a site-specific environmental assessment, which the MMS said would take about six months. This places an FPSO (if all goes to plan) is US Gulf waters by the end of 2001 at the earliest, but more than likely, such a vessel would require 1-2 years to convert or build, unless a producer anticipates the MMS decision and moves ahead.
Independent analysis
Some oil and gas producers are preparing for any number of options in the decision by the MMS. For example, BP Amoco has formed a deepwater oil and gas transportation team. The mission of the group is "to deliver options to bring to shore the company's significant oil and gas reserves in the southern Mississippi Canyon, the southern Atwater Valley, and the Green Canyon areas of the Gulf" on a 100% BP Amoco funded basis.
BP Amoco said the team is working along two tracks: one looking at oil transportation issues, the other looking at gas pipeline options. "We expect to develop a set of recommendations and begin execution of the project in the next year," explained David Welch, BP Amoco's President of Gulf of Mexico Deepwater Development.
"Our expectation is that the first segments of the system will be available for use as early as 2003, when the first of the fields under development is ready to begin production," Welch said. "We estimate the cost of providing the needed infrastructure to be in excess of $1 billion."
Furthermore, BP Amoco has awarded contracts valued at $8 million during the first year to Paragon Engineering and Intec Engineering to do preliminary engineering work relating to this project. Paragon will focus on onshore and the continental shelf offshore pipelines and potential booster stations. Intec will concentrate on deepwater infrastructure. The companies also will help BP Amoco review and select routes, equipment, and transportation system components.
Without FPSOs, the Gulf of Mexico deepwater development will remain tied to the pace at which deepwater pipeline infrastructure can be installed. There are clusters of deepwater discoveries, which make economic sense to link with pipelines back to existing infrastructure, but most discoveries are widely spread, such that pipelines linking more than one or two would be prohibitively expensive at this time.
The pipeline problem is central to any leasing or drilling decision by producers in the Gulf of Mexico. Stranded investments in exploratory and confirmation drilling are a luxury only the largest producers can afford. But the larger picture is that producers are wasting a considerable effort and investment in the Gulf of Mexico and elsewhere in the world to gain the knowledge and equipment designed to drill and produce in great water depths, only to be limited by a lack of transport infrastructure. On the other hand, regulators would caution that one environmental accident in deepwater will put all that investment on hold anyway.
Two scenarios
With or without FPSOs, the Gulf of Mexico deepwater will experience a boom. With FPSOs, development will take place earlier on many discoveries, and render some fields commercial that are not developable due to infrastructure access or other transport limitations.
The other scenario, without FPSOs, will bring about another type of boom. Pipeline and pipelay contracting capacity will come at a premium as the significant cost and time required for heavy wall deepwater pipelaying will tax the fleet - and pipe mills.
Already, pipeline and construction vessel contractors are gathering in the Gulf of Mexico, knowing that regardless of whether FPSOs are approved or disapproved, they will have a great deal of work laying laterals, connecting lines, field lines, crossovers, and protective materials for all types of lines.
Despite the wide availability of FPSO experience in other areas of the world, the decision over FPSOs in the Gulf is a treacherous one for the MMS. Even though there are valid safety or environmental concerns, refusal to grant FPSOs status to operate or severe limitations on their deployment will undoubtedly hold back development in the Gulf of Mexico. From this, other repercussions will result:
- At a period when oil and gas prices are very high and US imports are continuing to rise, the US is becoming more dependent on the Gulf of Mexico for future production and import relief. Measures that are seen to delay that development could be politically costly, although an accident traceable to poor deicision-making could have the same result.
- Linking development too strongly to the presence of infrastructure or pipeline availability limits exploration (and therefore competition for leases) and development to the largest producers. Smaller producers are squeezed out of an equal opportunity to pursue deepwater leases.
Approval of FPSOs opens up bidding, leasing, and drilling to many more producers, who would otherwise have stayed out because of the cost stranding situation.
FPSOs attractive option
FPSOs are not the only floating production scheme, but when storage must be incorporated, the options dwindle fast. Deep draft floating systems, of which spars are the best example, have the most experience outside of FPSOs, but some new designs of semisubmersible units can also incorporate storage in lower modules. However, FPSOs probably are the least costly units and are easier to re-deploy from one field to another.
There is another aspect of FPSOs that should help establish them as a strong ally to producers in development decisions. Like drilling rigs, supply boats, helicopters, consumeable providers, and other mobile assets or services offshore, FPSOs are gradually becoming a commodity.
Originally, oil and gas producers purchased converted or newbuilt FPSOs and deployed them on single fields. Thought was given to later re-deployment, but not seriously and the economics did not depend on it. Gradually, the complexity of FPSOs (turrets, mooring, production trains) forced producers to re-visit both the redeployment as well as ownership issues.
In order to make the economics work, and especially when prices for conversions and newbuilt units soared over $200 million, producers had little choice but to program in re-deployment when designing the vessels. Today, FPSOs are generally insensitive to depth, so they are ideal for later use in deepwater.
Just as with drilling units, secondary or later redeployment elsewhere allows producers to sell off these costly assets and lease them back. Today, a number of contractors have made a market in FPSO leasing, and most of them remained quite stable despite weak oil price conditions.
Not only are FPSOs growing into a global commodity fleet, but producers are gaining more options on deployment and lease flexibility, all of which will help large and small producers in the Gulf of Mexico pick the right vessel for their needs.
Eventually, the vessels that offload the production from moored FPSOs will also become commodities, with common mooring and loading connections, so that they can receive production from any number of units. The number of discoveries in the Gulf of Mexico, and even West Africa, provide some assurance that this will happen.
What is decided in the Gulf of Mexico will not change the course of FPSO economics, just delay what would have taken place anyway. And, pipeline contractors are going to have plenty of work to do anyway, because of the increased number of fields made commercial in deepwater and ultra-deepwater by the FPSO option.
