Breaking News
Investing Pro 0
Cyber Monday Extended SALE: Up to 60% OFF InvestingPro+ CLAIM OFFER

This decade's oil boom is moving offshore - way offshore

Stock Markets Aug 31, 2022 04:12PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
4/4 © Reuters. FILE PHOTO: A general view of the Equinor's Johan Sverdrup oilfield platforms in the North Sea, Norway December 3, 2019. REUTERS/Ints Kalnins/ 2/4
 
RDSa
-0.11%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
CVE
-1.21%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
EQNR
-0.96%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 
BP
-0.50%
Add to/Remove from Watchlist
Add to Watchlist
Add Position

Position added successfully to:

Please name your holdings portfolio
 

By Rod Nickel and Sabrina Valle

(Reuters) - Global oil companies are pumping billions of dollars into offshore drilling, reversing a long decline in spending on the decades-long projects including some in the remote iceberg waters far off Canada's Atlantic coast.

Surging oil prices are encouraging the investments, along with Europe's mounting energy demand as the Ukraine-Russia war drags on.

Offshore production sites are more expensive to build than onshore shale, the last decade's investment darling. But once they are up and running, they can turn profits at lower prices than other forms of production, according to consultancy Rystad Energy.

They are also designed to pump oil for decades, a counterintuitive move that could increase financial risk for the projects as the world pushes for net-zero greenhouse gas emissions by 2050 to slow climate change.

Offshore projects generate fewer emissions per barrel than other forms of oil production due to their massive scale, but they would still increase global air pollution. Environmental groups warn that spills far offshore are hard to clean up.

One of the most remote developments is near Canada, where Norway's Equinor ASA (NYSE:EQNR) is close to a final decision on its Bay du Nord project 500 kilometers (311 miles) offshore of Newfoundland and Labrador.

The site is so far from shore that it falls in international waters, requiring Canada to pay United Nations royalties. It would be a global first, according to Energy Regulation Quarterly, illustrating how far producers are willing to go for oil supplies that could last up to three decades.

'LAST ONES STANDING'

Canada has set a goal of lowering its emissions by 40% to 45% by 2030 from 2005 levels, but Ottawa approved Equinor's C$16 billion ($12.37 billion) Bay du Nord in April anyway, saying it raised no significant environmental issues.

Ottawa could approve more such projects as long as they produce low emissions, have best-in-class technology and can become net-zero by 2050, said Jonathan Wilkinson, Canada’s natural resources minister. Bay du Nord is expected to produce below 8 kilograms per barrel of carbon dioxide, Equinor estimates, less than half the international average.

"Those facilities that are producing oil and gas with zero or near-zero production emissions are going to be the last ones standing," Wilkinson said.

Bay du Nord, which could first produce oil by decade's end, might be the first of several massive Newfoundland offshore projects. OilCo, a Newfoundland government corporation, has identified 20 prospective projects with 1 billion barrels in reserves each, CEO Jim Keating said.

Such projects come with challenges not seen onshore.

The Bay du Nord floating production storage and offloading unit would measure more than a city block, producing crude in icy waters known for waves up to 15 metres high in winter, according to Equinor. Icebergs drift across the area between March and July, and two species of endangered sea turtles inhabit its waters.

"Canada already has profitable producing fields far from the coast with similar weather," Wood Mackenzie upstream analyst Marcelo de Assis said, noting that the project's water depth of 650 to 1,170 metres is much less than wells elsewhere at 3,000 metres.

Bay du Nord would be so far from shore that helicopters flying in workers for three-week shifts might carry only eight people, half the usual number, to account for extra fuel, according to Rob Strong, a longtime Newfoundland oil industry consultant.

Despite the high upfront construction cost, projects like Bay du Nord interest companies because the 500 million barrels of recoverable reserves would be enough to last 20 years.

Equinor declined to provide a production cost estimate, though it said that major projects coming by the end of 2030 will, on average, break even with oil below $35 per barrel.

Producing offshore projects average a break-even price of $18.10 per barrel of oil equivalent, compared with $28.20 per barrel for onshore, according to Rystad.

Other companies bought into offshore Canadian projects this spring. BP (NYSE:BP) PLC purchased a Bay du Nord stake and Cenovus Energy (NYSE:CVE) restarted a stalled project.

Global offshore investment should rise 27% from 2021 levels to $173 billion in 2024, reversing a decade of decline and growing slightly faster than onshore investment, Rystad estimates.

"I've been up and down like a yo-yo," said Strong, who has been called the "grandfather of the Newfoundland offshore oil industry." He added: "Two years ago I was at the depths of depression. Today, I'm very optimistic."

The profitability of offshore projects depends on future oil demand, and forecasts vary widely. The International Energy Agency (IEA) in 2021 advised against new fossil fuel projects for the world to reach net-zero emissions by 2050 if global transportation is fully supplied by electric vehicles and renewable fuels by mid-century, oil demand would drop 75% to about 25 million barrels per day, IEA said.

Bay du Nord could become a stranded asset before the end of its lifetime if oil demand peaks between 2025 and 2030 and the world's crude needs are supplied by lower-cost regions like the Middle East, said Jean-Francois Mercure, an associate professor in climate change policy with the University of Exeter, England.

"Financial risk will be very high," Mercure said.

However, Wood Mackenzie estimates oil demand is only likely to halve even in its most ambitious 2050 energy transition scenario - and could even rise.

Lower break-even costs: https://graphics.reuters.com/OIL-GLOBAL/zjpqkbbblpx/chart.png

'PRECIOUS AND FRAGILE'

Producing offshore emits less carbon per barrel than onshore as projects' massive scale and new technology make it easier to curb flaring and methane emissions and recycle heat.

Offshore projects still carry huge environmental risks, said Gretchen Fitzgerald, Sierra Club's Atlantic director. After a spill, Equinor would be unlikely to contain oil due to intense wave action and instead use chemicals to disperse it. Such an approach may harm northern bottlenose whales and deep sea corals, she said.

"Because it's so far offshore, it's hard for people to imagine what the environment is like. But it's pretty precious and fragile," Fitzgerald said.

Equinor will only approve projects if "convinced they are safe and environmentally responsible," spokesperson Ola Morten Aanestad said, adding it has long experience in harsh environments.

Other European oil majors are setting similar goals. Both Shell (LON:RDSa) PLC and BP plan to reduce crude output over time but say they will keep investing heavily offshore. Each is adding a new Gulf of Mexico platform this year.

"We believe that hydrocarbons will be part of the energy mix for many decades to come," said Shell's executive-vice president for global deepwater, Paul Goodfellow.

Offshore accounts for about one-third of world oil output, but that could increase in coming years.

"The energy transition should take some 25, 30 years, WoodMac's Assis said. "It will be difficult to eliminate oil. Europe's energy crisis is a reminder of that."

($1 = 1.2935 Canadian dollars)

This decade's oil boom is moving offshore - way offshore
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (1)
John Hat
John Hat Aug 31, 2022 2:17AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Germany is about to enter the dark ages once more.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email