The deep water Gulf of Mexico will continue to be the
premier exploration province in the United States for years to come
-- but the deep water is not the Gulf's only prospective region.
The Outer Continental Shelf is seeing a resurgence
of activity as more and more companies begin the search for deep
gas below 15,000 feet -- targets virtually unexplored.
Only five percent of all wells drilled on the Gulf
Outer Continental Shelf have penetrated sediments below 15,000 feet.
However, the MMS estimates that there could be five to 20 trillion
cubic feet of deep gas recoverable resources below this depth.
MMS already is working with offshore operators to
explore and develop the undiscovered recoverable deep gas resources
-- it has offered royalty relief incentives for deep gas production
from new OCS leases issued in Sale 178 held last March. The agency
also is considering various incentives to explore and produce deep
gas from OCS blocks that were leased in previous sales.
"New discoveries of deep gas on the OCS offer the
best short-term opportunity for achieving the large reserve additions
and necessary high flow rates to offset declining gas production,
which has been falling since 1997," notes a recent MMS report titled
"The Promise of Deep Gas in the Gulf of Mexico."
"Recent deep gas discoveries on the OCS have shown
these new completions can produce as much as 20 to 80 million cubic
feet of gas per day," the report continued. "The abundance of platforms,
producing facilities and pipelines on the shelf will allow new deep
gas production to flow quickly to market to help meet increasing
U.S. demand for gas ...
"The MMS is just now at the early stages of developing
incentives to produce deep gas from the shallow water of the Gulf
of Mexico. These efforts hold the promise to potentially accelerate
near-term gas production for the benefit of the entire nation."
By the Numbers
According to forecasts by various organizations,
consumption of natural gas in the United States is expected to rise
from about 22 trillion cubic feet in 1999 to more than 30 trillion
cubic feet in 2015. Because production from the federal waters of
the Gulf of Mexico supplies about 23 percent of domestic gas production,
the Gulf will have to contribute from 6.5 to 7.5 trillion cubic
feet of gas production per year by 2015, compared with the estimated
five trillion currently produced each year.
MMS estimates that the potential of undiscovered
resources for deep gas in the Gulf of Mexico is about five to 20
trillion cubic feet of gas, with the most likely value estimated
at 10.5 trillion cubic feet. Of this 10.5 trillion cubic feet, the
deep gas potential under existing leases in the OCS is estimated
at about 6.3 trillion cubic feet, with another 4.2 trillion cubic
feet under blocks not currently under lease.
Deep gas potential is not confined to certain areas
of the Gulf. The western, central and eastern sections of the Gulf
are prospective all the way from the shoreline out to the edge of
the continental shelf where much of the deeper zones are under thick
salt sheets.
Out of the 35,000 wells drilled on the OCS, only
1,842 wells have been drilled deeper than 15,000 feet. These deep
wells discovered 503 reservoirs below 15,000 feet with an estimated
10 trillion cubic feet of recoverable gas resources.
The average discovery size of a deep gas reservoir
is about 20 billion cubic feet of gas. Some areas are more likely
to have large deep gas reserves than others -- approximately 2.5
trillion cubic feet of the 10 trillion cubic feet discovered was
found in 24 reservoirs in the highly productive Norphlet Trend,
with an average discovery size of 105 billion cubic feet of gas
per reservoir.
In the remaining 479 reservoirs discovered outside
of the Norphlet Trend area, 7.5 trillion cubic feet was found with
an average discovery size of 15.7 billion cubic feet of gas per
deep reservoir.
Incentives to Produce
The primary goal of MMS's deep gas initiative is
to increase the volume of gas production from the OCS from now through
2006. OCS gas production has been declining since 1997 and the deep
gas initiative is designed to slow the rate of decline.
"New discoveries of deep gas on the OCS offer the
best short-term opportunity for production increases to offset declining
gas production from the shelf," reported the MMS. "For example,
one deep gas well placed on production in the Western Gulf of Mexico
OCS in 1999 produced at more than 65 million cubic feet per day
for 32 days before problems with the completion caused the well
to be shut in and abandoned."
Another deep gas, subsalt discovery in the Central
Gulf has been producing 80 million cubic feet of gas per day from
two combined gas completions this year.
Royalty initiatives for deep gas production are intended
to help offset the high cost and high risk associated with drilling
deep wells on the OCS. The royalty value of 20 billion cubic feet
of gas at 1/6 royalty and $3.50 per MMBtu is about $11.7 million
-- a significant economic incentive for wells the MMS estimates
cost $9 to $23 million.
Under the terms of the initiative, deep gas production
must begin within the initial five-year primary term, or no later
than 2006, in order to receive royalty relief from leases awarded
in Sale 178. Any deep gas royalty relief offered for existing leases
would probably require the operators to begin production within
a specific period, likely similar to the primary term for new leases.
"Annual gas production from the federal waters of
the Gulf of Mexico has exceeded additions to proved gas reserves
every year since 1984, causing a decreasing trend in remaining proved
gas reserves," the MMS reported. "Proved gas reserve additions by
reservoir discovery year have declined since the early 1970s.
"Approximately 78 percent of total gas production
from the federal waters of the Gulf was produced from less than
200 meters water depth in 1999. New discoveries in deep water may
eventually change this downward trend, but deepwater reserves have
longer lead times for development, and America needs new gas discoveries
as soon as possible."