The Coming Shootout at the LT Corral
- Peter Lovie (Devon Energy)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- December 2008
- Document Type
- Journal Paper
- 16 - 17
- 2008. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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The traditional pipeline infrastructure in the US Gulf of Mexico (GOM), perhaps the most efficient in the world, faces new challenges as fields lie further and further from shore, in deeper and deeper water, and increasingly in mountainous seabed terrain. The apparently obvious tanker solution is not so easy in US waters with the Jones Act requirement to use higher-cost US-built and -manned tankers, often at economics and availabilities different from international trade. Only last year were the contracts signed for the first shuttle tankers in the GOM, for operations starting in 2010 at the early production system (EPS) being used for the Cascade/Chinook development (Petrobras operated with Devon and Total as partners).
The stakes are high, with transportation contracts in the billions of dollars, whether for pipeline or shuttle tankers. A “shootout” threatens to become immediate, with the export mode to be decided in the next year for longer-term, full-field developments: Jack/St. Malo (Chevron operated) and Kaskida (BP operated). I work for Devon, which has large minority interests in both of these developments plus many other Lower Tertiary (LT) prospects—some Devon operated (such as Bass, now drilling) and some not. Each time our company runs the numbers, we see how the economic prize on the export negotiating table is huge and how the traditional pipeline solution is challenged like never before.
These two different transport modes have battled it out in the GOM intermittently since 2001. So far, the pipeliners have prevailed over the tankermen.
The laws of physics and economics will soon be tested in the marketplace as pipeliners and tanker companies square off on transporting crude oil production from the remote locations of LT prospects in the GOM. What is different this time is the combination of distances, water depths, and the scale of investments. When it stretches the technical and economic limits of the pipeliners, the tanker people just steam a little further out. And if the field plays out early, the tankermen just go somewhere else with their vessels.
During 2000 and into mid-2001, deepwater export was the theme of a low profile but intense competition for exporting production from BP’s coming developments. It went down to the wire: bids and counter bids, pipe vs. storage vessel, and tanker export. The regulatory picture was not clear back then—US government approval of the Minerals Management Service (MMS) Environmental Impact Study approving floating production, storage, and offloading (FPSO) vessels and shuttle tankers in the GOM was not given until December 2001. And use of tankers would have prevented a steady income from partial or complete oil company ownership of a pipeline. The prize went to the pipeliners in what is now the Mardi Gras system. Pipeliners 1, Tankermen 0.
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