The following commentary was developed by Past NOIA Chairman Matt Simmons, President, Simmons & Company International, on a panel discussion held during NOIA's 1999 Fall Meeting. The panel, titled "Meeting Florida's Growing Energy Demands," included Ralph Schofield, Vice President, Deep Water Development, Amerada Hess Corp.; Alex Alvarada, Pipeline Section Chief, Minerals Management Service; Tony Altman, Vice President, Energy & Marketing, Florida Power & Light Company; Peter R. Lagionvane, Analysts, Department of Energy; and Wayne R. Maken, Economic Analyst, Florida Public Service Commission.
At the NOIA Fall Meeting, we had an outstanding panel of experts discussing the energy needs of Florida, now the fourth largest state in the U.S. The story that all four panelists portrayed was remarkably bullish for natural gas. It is a tale of Florida, one of our fastest growing states, which is planning for virtually all of its future electricity growth to be generated from natural gas.
The same is true for many, if not most, of the other regions of the U.S. But Florida's numbers are so remarkable, and the state's alternative sources of energy so few, that it might be the most important regional market for natural gas.
The summary of facts about Florida's energy needs begin with its population and the projected growth of its people. Currently, the state has 14 million people, making it the fourth largest state in the U.S. By 2020, Florida expects a 46% surge in population, pushing it ahead of New York as the third largest state. Only California and Texas are expected to experience faster population growth.
There are two giant pipeline projects planned that should meet the extra gas needs for Florida. One is named Buccaneer; the other is Gulfstream. Each begins around Mobile Bay, Alabama, and traverses the eastern portion of the Gulf of Mexico.
Buccaneer comes ashore just north of Tampa; Gulfstream comes ashore just south of Tampa. The first project will be a 650-mile, 36-in. main line, with 400 miles of it offshore. The second is a 500-mile, 36-in. main line, with 437 miles of it offshore. Construction on both lines is expected to begin in early 2001.
Both pipelines are expected to start service in the second quarter of 2000, so both are fast-track projects. Buccaneer will have an initial capacity of 950 MMcf/d, and Gulfstream will have initial capacity of 1.1 bcf/d. In total, they will deliver 2.050 bcf/d of Gulf of Mexico gas, or about 15% more than the Gulf now produces. All of this gas is expected to come from deepwater gas fields.
An economic analyst from Florida's Public Service Commission gave some added gas statistics. The current gas delivery capacity is 4.7 bcf per day. Florida Power and Light could use an additional 100% of this total. So, the two new pipelines will immediately increase the gas market in Florida by 44%. He also commented on the rather strange and rigid attitude that all Floridians, including Governor Jeb Bush, now share about ever drilling for oil off the Florida coastline.
Not in my backyard
There is adamant opposition to any offshore drilling anywhere within a 100-mile zone of Florida's west coast. Some would like to extend drilling bans beyond the 100-mile current unofficial limit. Destin Dome gas is now the topic of public hearings and environmentalists are aligning all their biggest guns to stop this project. Why? Because of "oil spill fears."
- Fact: It is all natural gas.
- Fact: The environmentalists do not care.
So, the state is betting its entire economic future on a steady and rapid increase in natural gas from the central and western part of the Gulf of Mexico. No one in the state seems to want to even contemplate trying to shore up any supplies by drilling "in his or her own backyard."
There is little concern by any state planners of gas supply, and not even the vaguest concern that the new pipeline gas supply may encounter any delays or production restraint due to a limited number of deep water rigs.
After a quick and simple calculation, I made my own determination of the number of rigs needed to make all of this happen. Assuming that these gas needs come from wells that are not now onstream, which must be a sound assumption, this creates the need for around 10-15 deepwater rigs. To get this number, I assumed that the average deepwater well produces two-thirds oil and one-third gas, with a total delivery rate of 10,000-12,500 boe/d.
These numbers are similar to what the Baldpate project now produces. I also assumed that an average deepwater rig drills and completes around 4.0-4.5 wells per year. I further assumed an 85% success rate for all these development wells. Implicit in these numbers is another possibly aggressive assumption. I assumed that all this gas was now found, so no additional rigs would be needed for exploration of reserves to create the initial production needed to fill these two major new lines.
If these rig numbers are close to the mark, what they mean is that all the added deepwater rigs in the Gulf need to be "dedicated" to drilling these wells, unless a lot of the planned deepwater fields have platform rigs for their development drilling. And remember - these numbers assume that drilling for this incremental production will begin on Januany 1, 2000.
When one steps back and puts this remarkable story into perspective, it is quite a tale. Here is one of the fastest growing and most prosperous states, that is hinging all its future prosperity on natural gas. But, the state is also rigid in its position: natural gas cannot be developed in Florida's own backyard, despite the fact that there is not a shred of evidence that there is any environmental risk of a natural gas spill.
And Florida seems to have no "contingency plans" if for some reason the new pipelines have difficulty getting built in time, let alone having sufficient gas to come through the new lines.