Offshore Technology Conference Update

The Offshore Technology Conference (OTC) 2007 proceeds apace. Are you in the business? What do you need? What do you want to know? It is all here. Pick an item or service.

What Do You Need?

Corrosion and abrasion control? 76 exhibitors. Wellbore equipment? 36 exhibitors. Laboratory equipment? 14 exhibitors. Offshore platforms? 68 exhibitors. Decommissioning services? 33 exhibitors. Mooring and positioning systems? 60 exhibitors. Pumps and compressors? Another 60 exhibitors. Artificial lift? 25 exhibitors. And it goes on. Just the OTC program alone is the size of a small-town telephone directory. Welcome to the world of the offshore, and to the OTC.

From Where Does It All Come?

In other articles, I have asked the question, how far upstream do you think? When you fill the gas tank of your car, do you ever wonder about the fuel-holding systems under the parking lot of the gas station? Do you think about the tanker truck that hauled the fuel from a terminal to the gas station? Do you think about the terminal tanks? How about the interstate pipeline or barge that carried the fuel from the distant refinery to the nearby terminal? Or the pipelines that brought the oil to the refinery? Right about at this point is where the purpose of the OTC begins.

What Is the OTC?

The OTC includes the geophysical services that help the geologists pick a spot in the middle of the ocean, so they can tell management where to spend a billion dollars or more. The OTC includes the drill ships, the jack-up rigs, and the semi-submersibles that will drill the wells. The OTC includes the drill bits, the pipe systems, and casing plans. The OTC includes the down-hole equipment that penetrates six or seven miles into the crust of the Earth. The OTC includes the massive equipment that powers and runs the rigs, the cables, the wires, the electric transmission, the safety systems, and pollution control devices. The OTC includes the transport vessels that haul stuff out to the rig, and other vessels that haul the oil ashore, or the subsea systems that pipe it there. The OTC includes the communications equipment, the training for the workers, the logistics that puts it all together, the insurance, the inspections and quality assurance, the banking, and even the good-old government regulation. The OTC is a reflection of a complex, world-spanning industry.

Rocket Science, Without the Rockets

So the OTC highlights the offshore oil industry, but with an emphasis on things about which you do not usually ponder unless you have been there. Take all of the complexity of drilling for oil and gas onshore. Take all of the geological risk, the political risk, the high costs and financial risk, the environmental risk. Take it all and then put it out in the ocean, up to hundreds of miles from shore, in water (almost always cold water, by the way) up to two miles deep, and constant corrosion and occasional hurricanes, typhoons, or icebergs coming your way. And the dictates of the modern global economy are that whatever you do, you have to do it quickly, efficiently, and safely. It is rocket science, but without the rockets.

History and Trends

The offshore industry has been around for about 60 years or so, ever since people started siting drilling rigs out over the shallow waters of the coastlines of several continents. Quite a bit of what goes on offshore is an evolutionary development of technology, with people identifying challenges and meeting them progressively.

In today’s world, as you can imagine, there are many dedicated programs to provide a boost to that evolutionary process, if not to “force” the process along. These range from government-funded research to university-level programs, and many private industrial and consultative efforts, with all sorts of combinations of the foregoing. It is all about moving farther out from shore, to more prospective areas, to deeper waters, to more extreme climates. It is all about looking for oil and gas, finding it, and bringing it to landfall.

Alternative Energy Sources From Offshore

Well, it was all about looking for oil and gas and bringing it home. This year’s OTC program actually devotes quite a bit of time and effort to offshore wind power development, as well as to capturing energy supply from tidal and wave action. It makes sense. The same people who have been designing structures and bending metal for the offshore hydrocarbon extraction industry for the past six decades are the ones whom you would expect to have the technical expertise to bend metal for energy capture systems in wind and wave.

Matthew Simmons: Energy From the Ocean

Energy derived from the ocean will be a key source of future energy supplies for the United States, said Matthew Simmons, the chairman of Simmons & Co. Intl. and author of the highly regarded book Twilight in the Desert. According to Simmons, who presented his talk to an eager and enthusiastic crowd of OTC attendees, the U.S. industry and government need to begin “now” to conduct aggressive levels of research to develop oceanic energy resources.

“This is the issue we should have paid attention to for the last 15 years,” said Simmons. Simmons noted that offshore oil production has already begun to decline, using as examples the depletion profiles of areas in the Middle East, Mexico, and the North Sea. In January 2007, noted Simmons, global offshore oil production was down 1 million barrels per day (b/d) from May 2005.

Meanwhile, according to Simmons, the offshore rig fleet is becoming “long in the tooth” as rigs age without adequate levels of new construction. Due to skyrocketing construction costs and shortages of yard space and personnel, offshore vessels and rigs are not being replaced as quickly as they should be to maintain the future pace of offshore drilling. Many vessels will also “become obsolete” in the next five-10 years, Simmons said, explaining that contractors have done an “excellent job of refurbishing rigs,” but “rust never stops.”

One key point that Simmons made in his talk was that “To slow the decline in oil and gas production, we must drill faster.” But he warned, “We may be faced with a declining rig fleet.”

Thus, according to Simmons, energy capture from the ocean offers a number of opportunities to develop future energy supplies. These include waves, currents, tides, aqua biofuels, ocean geothermal, and vent and seep energy. In a comment that had many in the room nodding their heads, as if complimenting a great idea, Simmons said, “Algae is the single most interesting biofuel. There is plant life in the oceans far below where light ever strikes.”

Simons also noted that gas hydrates are another potential energy source that remains untapped. “We have never tried to capture them, so we don’t know if it would be successful, but at least we have not tried and failed.”

And on that hopeful note, I will end this update from the OTC.

Until we meet again…
Byron W. King

May 3, 2007

The Daily Reckoning