Testimony for the United States House of Representatives Committee
on Resources Subcommittee on Energy and Mineral Resources
Submitted by Jack C. Caldwell, Secretary, Louisiana Department
of Natural Resources
May 14, 2001
Many critical issues face the future development of oil and gas
development in the OCS, particularly if the full potential of the
OCS is to ever be realized, many of which are mentioned below.
Natural gas is touted as the fuel of the future. Current demand
for natural gas is 22 trillion cubic feet per year. The National
Petroleum Council projection for 2010, just ten years away is for
a demand of 30 trillion cubic feet. Where is all of this gas going
to come from? Natural gas is a wonderful fuel, feedstock, and energy
source, but it has to be produced from somewhere. The OCS is looked
to as a key component of the supply source, but action is needed
if the OCS is to supply its proportionate share of this future supply.
Something has to be done to reverse the current decline rate. Deep
water slope production is not adding to the production base as quickly
as the shelf production is declining.
Nationwide, drilling has increased significantly over the past
seven years, but gas deliverability is not keeping up with demand
for gas. As Figure 1 shows, between 1993 and 2000, the number of
gas wells drilled in the U.S. has increased more than 50% from about
10,000 per year to 15,000, but average daily natural gas production
has grown by only a little over 10% from about 61 billion cubic
feet per day to 67.5 billion cubic feet per day.
Figure 1
U.S. Natural Gas Deliverability Capacity Has Not Kept Pace with
Economic Growth and Demand
Click to enlarge
For the full potential of the OCS to be contemplated, all areas
of the OCS must be opened up to exploration and production. The
U.S. cannot pretend to have a comprehensive OCS development policy
when most of the coastal waters of the U.S. are off limits to exploration.
The Louisiana OCS territory is the most extensively developed and
matured OCS territory in the U.S. Louisiana OCS territory has produced
88.1% of the 12.8 billion barrels of crude oil and condensate and
82.9% of the 139 trillion cubic feet of natural gas extracted from
all OCS territories from the beginning of time through the end of
2000. But, Louisiana OCS gas production peaked at 4.16 trillion
cubic feet in 1979 and was at 4.1 trillion cubic feet in 2000. It
is illogical to continue to base the future OCS contribution to
the nation's energy supply almost entirely on production in the
central and western areas of the Gulf of Mexico, while keeping the
eastern Gulf, the entire Atlantic coast, and the Pacific Coast off
limits to future exploration and development.
Not only is the Louisiana (Central Gulf) a mature producing area,
but the infrasturcture is aging and in need of attention. The offshore
and onshore pipeline infrasturcture is old, with some or it deteriorating.
There is a need to expand the capacity of pipelines to handle hoped
for increases in production volumes of oil and gas. The onshore
support infrastructure is in need of substantial improvement and
modernization.
To fully develop the OCS potential, we must develop the deep reservoirs.
Shallow deposits have been widely exploited; whereas the deep deposits
have gone almost untouched. An immense resource base lies at subsurface
depths of 20,000 feet or more as shown in Figure 2.
Figure 2
Estimated Natural Gas Reserves in the 15,000 - 30,000 Foot Depth
Range, Lower 48 and Alaska
To tap this vast deep resource base, we need to be drilling something
in the range of 300 wells per year below 20,000 feet rather than
the current 30 shown in Figure 3.
Figure 3
Deep Drilling in the U.S. and in Louisiana
Click to enlarge
Unfortunately deep drilling costs increase exponentially with the
subsurface depth as shown in Figure 4.
Figure 4
Drilling Costs Increase Exponentially with Subsurface Depth
Click to enlarge
To counteract this extremely high cost, MMS should consider expanding
the Deep Gas Initiative introduced for Central Gulf Lease Sale 178
and proposed Western Gulf Sale 180, which eliminates royalty for
the first 20 billion cubic feet of gas production from leases at
greater than 15,000 foot depth until a gas price trigger limit of
$3.50 per million Btu's is reached. Expanding the price limit to
something like $5.00 - $7.00 per million Btu's is warranted for
this expensive drilling domain. It would also be high enough to
get some attention in times like today when the spot market price
of gas is well above $3.50.
The unconventional gas incentives for coal bed methane and tight
sands gas production is an excellent precedent for establishing
a deep gas incentive for onshore and offshore drilling. The 1979
Section 29 Federal Tax Credit bill generated a $60 billion investment
in the recovery of coal bed methane.
Development of new technology and greater penetration of existing
state of the art technology in the field is needed to fully develop
the potential of the OCS. Some of this new technology that is still
expanding its application and capabilities include:
- Directional drilling
- 3-D seismic
- 4-D seismic
- Slimhole drilling
- Horizontal drilling
- Measurement-while-drilling techniques
- Improved drill bits
- Advanced synthetic drilling fluids
- Corrosion resistant alloys
- Improved completion and simulation technology
- Improved offshore and deepwater drilling and completion technology
- Better reservoir management
- Non-damaging fluids
- Advanced hardware for high efficiency directional drilling with
quicker penetration and lower cost
Finally, but not least important, addressing environmental impacts
and perceptions of offshore development on onshore ecosystems and
life needs to be adequately addressed by placing more attention
and funding for impact assessment and amelioration.
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