The Gulf of Mexico on the Brink of Oil Boom
With the recent drop in crude prices, consumers are celebrating the return of seemingly unreal gas prices at the pump (an average of $2.20 per gallon throughout the nation); however, there are many in the oil and gas industry who are beginning to panic about the effect it will have on the economy. For example, one largely agreed upon benchmark is Western Texas Intermediate, which recently dropped to $48 per barrel; this is the lowest it has been in the last 5 years and a whopping 50% decrease from the prices last summer.
This plunge in crude prices (attributed to more supply than demand) has an immediate and wide-spread effect on many people. Last week, the Dow Jones industrial average plummeted 331 points and several shale producers from the state of Texas have announced that they will be scaling back their production levels. Even BP, one of the nation’s energy giants, has announced they would be accelerating job cuts.
However, deepwater operations are on the brink of an unprecedented boom.
Deepwater Drilling & Production: Long-Term Investment
Because of the nature of deepwater drilling and production, it is not a short-term investment. In fact, it is one that is largely long-term in nature—involving projects that are fueled by multi-million dollars with a timeline that could take years to just get started. For this reason, deepwater projects are rarely affected by the minor fluctuations to the market, unlike shale production that is primarily supported by crude prices.
One deepwater Gulf of Mexico analyst, Imran Khan, told USA Today, "There's no stopping those [deepwater projects]. Once you start spending all that money, it's hard to stop in the middle.”
Perhaps this is why the numbers support an enormous and continuing growth in the Gulf of Mexico. Per Khan, production in the Gulf is set to increase more than 20% of 2014 levels this year, with production reaching a peak in 2016 of 1.5 million barrels per day. This would surpass the previous record, which was set in 2009 before the Deepwater Horizon explosion put deepwater production to a temporary halt.
Is the Industry Safe Enough?
Following the Deepwater Horizon explosion in 2010, safety regarding the oil and gas industry became front and center. As one of the worst maritime accidents in recordable history, it set forth an enormous amount of regulation—including the requirement of energy companies in the Gulf to be capable of plugging deepwater spills. Currently, companies regularly employ marine spill specialists for just that.
Another concern is the current ratio between inspectors who are responsible for regulating wells in the Gulf and the actual number of wells. While there has been an increase from 53 inspectors before the Deepwater Horizon incident to the 99 today, it is still woefully short when you consider the fact that there are more than 2,400 platforms, rigs, and other facilities throughout the Gulf.
According to the Sierra Club’s offshore drilling expert, while there have been significant steps taken to improve offshore safety, there could be a Deepwater Horizon repeat if more inspectors are not hired.
What the Future Looks Like for the Gulf of Mexico
For people in Port Fourchon, which is responsible for servicing 9 out of 10 rigs that operate in the Gulf, it is clear that this is an unprecedented time and that the Gulf is on the brink of an enormous boom in production. This can be seen even in just the port’s revenue itself. For example, after the spill from the Deepwater Horizon, the port lost $3 million in 2010; in 2014, it made $24 million in revenue. According to Port Director Chett Chiasson, “This is the busiest it’s ever been.”