- Oil Field Development
Oil Field Development
- By OilGasArticles Editor
- Published 04/20/2007
- Business and Investment , Exploration and Discoveries , Offshore Drilling , Oil Field Development , Gulf of Mexico , Middle East Oil Field Development , North Sea Oil Field Development , West of Africa , Oil Gas Companies , Subsea Oil Production , Technology and Engineering
Oil Reserves in South China Sea
The focus of most attention regarding the South China Seas resources has been on hydrocarbons in general, and on oil in particular. Oil deposits have been found in most of the littoral (adjacent) countries of the South China Sea. The South China Sea region has proven oil reserves estimated at about 7.0 billion barrels, and estimated oil production of around 2.5 million barrels per day. Malaysian production accounts for almost one-half of the regions total. South China Sea production has increased gradually over the past few years, primarily as additional production from China, Malaysia and Vietnam has come online.
The fact that surrounding areas are rich in oil deposits has led to speculation that the Spratly Islands could be an untapped oil-bearing province located near some of the worlds largest future energy consuming countries. Speculation that the Spratly Islands could have great strategic value has fueled disputes over ownership. In fact, there is little evidence outside of Chinese claims to support the view that the region contains extensive oil resources. Because of a lack of exploratory drilling, there are no proven oil reserve estimates for the Spratly or Paracel Islands, and no commercial oil or gas has been discovered there.
Resource estimates for the South China Sea region that have been reported in the Chinese press or attributed to Chinese officials vary greatly. Optimistic Chinese estimates of the South China Sea regions oil potential, however, have helped encourage interest in the area, with one report suggesting that the Spratly Islands region could become another Persian Gulf. One of the more moderate Chinese estimates suggested that potential oil resources (not proved reserves) of the Spratly and Paracel Islands could be as high as 105 billion barrels of oil, and another suggested that the total for the South China Sea could be as high as 213 billion barrels. A common rule-of-thumb for such frontier areas as the Spratly Islands is that perhaps 10 percent of the potential resources can be economically recovered. Using this rule, these Chinese estimates imply potential production levels for the Spratly Islands of 1.4-1.9 million barrels per day (at reserve/production ratios of 15 and 20). The highest Chinese reserves estimate implies production levels that are twice as high as this.
Chinas optimistic view of the South China Seas hydrocarbon potential is not shared by most non-Chinese analysts. A 1993/1994 estimate by the U.S. Geological Survey, for example, estimated the sum total of discovered reserves and undiscovered resources in the offshore basins of the South China Sea at 28 billion barrels. Using the same rule-of-thumb, these reserves could yield a peak oil production level for the Spratly Islands of 137,000-183,000 barrels per day, the same order of magnitude as current production levels in Brunei or Vietnam.
Natural Gas Reserves in South China Sea
Though sometimes overlooked, natural gas might be the most abundant hydrocarbon resource in the South China Sea. Most of the hydrocarbon fields explored in the South China Sea regions of Brunei, Indonesia, Malaysia, Thailand, Vietnam, and the Philippines contain natural gas, not oil. Estimates by the U.S. Geological Survey and others indicate that about 60 to 70 percent of the regions hydrocarbon resources are natural gas.
At the same time, natural gas usage among developing Asian countries is expected to rise by about 4.5 percent annually on average through 2025 -- faster than any other fuel -- with almost half of this increase coming from China. If this growth rate is maintained, demand will exceed 21 trillion cubic feet (Tcf) per year - nearly triple current consumption levels -- by 2025. Natural gas consumption could increase even faster if additional infrastructure is built. Proposals have been made to link the gas producing and consuming regions of the Pacific Rim region of Asia by pipeline, with the South China Sea geographically central to these regions.
Malaysia is not only the biggest oil producer in the region, it is also the dominant natural gas producer as well, and until recently has been the primary source of growth in regional gas production. The development of natural gas resources outside of Malaysia has been hampered by the lack of infrastructure. Despite this constraint, natural gas exploration activity elsewhere in the region has been increasing. Much of this new activity had occurred in the Gulf of Thailand, offshore China, in Indonesia around the Natuna Islands, and in Vietnam in the Nam Con Son basin southeast of Vietnam.
As with oil, estimates of the South China Seas natural gas resources vary widely. One Chinese report estimates that there are 225 billion barrels oil equivalent of hydrocarbons in the Spratly Islands alone. If 70 percent of these hydrocarbons are gas as some studies suggest, total gas resources (as opposed to proved reserves) would be almost 900 Tcf. If the rule of thumb for frontier areas were applied to these resource levels, the Chinese estimates would imply potential production levels for the Spratly Islands of almost 1.8-2.2 Tcf annually (at common natural gas reserve/production ratios in the region of 40-50). The entire South China Sea has been estimated by the Chinese to contain more than 2,000 Tcf of natural gas resources. As with oil, Chinas optimistic view of the South China Seas natural gas potential is not shared by most non-Chinese analysts.
The bulk of the worlds LNG trade passes through the South China Sea, and LNG shipments through the Sea to Northeast Asian Markets constituted well over half of the worlds LNG trade in 2001. Japan is by far the worlds largest consumer of LNG, with shipments to South Korea (the worlds second largest consumer of LNG) and Taiwan (the worlds fifth largest consumer of LNG) accounting for most of the remaining shipments through the Sea.
Thailand had 24 gigawatts (GW) of power generation capacity as of January 2003 from which it produced approximately 115 billion kilowatt-hours (Bkwh) of electricity. The decline of the Thai economy as a result of the Asian financial crisis resulted in a decline in domestic demand for electricity of about 3 Bkwh in 1998 before rebounding in 1999. This situation compelled EGAT the state-owned electricity company to revise its electricity demand projections. EGAT postponed or delayed a number of projects including: delaying the commissioning of the third and fourth 300-MW thermal units of the Ratchaburi power complex by three years to 2004 and 2005 respectively; postponing the start-up of the second 300-MW thermal unit at the Krabi power plant from 2001 to 2005; and delaying power purchases from three Laotian projects - the lignite-fired Hongsa project and the Nam Ngum 1-2 hydro projects to 2004 and 2005 respectively. While demand growth has recovered in step with Thailands economic growth over the last five years EGAT decided to lower its planned generating capacity reserve from 25% to 15% which further delayed the need for additional generating capacity.
The North Sea Region consists of Key European countries namely Norway, The United Kingdom, Denmark, The Netherlands and Germany. The North Sea contains Western Europes largest oil and natural gas reserves and is one of the worlds key non-OPEC producing regions. Norway and the United Kingdom represent the large majority of oil activities in the North Sea. The North Sea region is the second-largest supplier of natural gas to continental Europe, after Russia.
West African Power Pool (WAPP)
In an effort to improve power reliability and encourage private sector investment, ECOWAS has been working to establish the West African Power Pool (WAPP). In October 2000, 14 ECOWAS members signed an agreement to launch a project to boost power supply in the region. The WAPP agreement reaffirmed the decision to develop energy production facilities and interconnect their respective electricity grids. In December 2003, ECOWAS Heads of State signed the ECOWAS Energy Protocol, which provides open and non-discriminatory access to power generation sources and transmission facilities. In order to fully establish the WAPP within ECOWAS, project managers have identified four phases of the project that will be carried out over a 20-year period. The first phase involves laying the ground rules for how the WAPP will function and linking interconnection lines between zone A countries (Burkina Faso, CÔte dIvoire, Ghana, Niger and Togo) and zone B countries (Cape Verde, the Gambia, Guinea, Guinea Bissau, Liberia, Mali, Senegal and Sierra Leone). Completion of the first phase is set for the end of 2006. The second phase (2007 – 2012) includes building missing links along Nigerias coastal line, development of new institutional entities and implementing policies from phase one. Phases three and four (2012 – 2023) involve making the system fully operational. USAID has funded the planning for WAPP which included (1) ECOWAS Vision Statement and Action Plan for WAPP (2) agreements on rules for trading electricity (3) regional regulatory body (4) dispute resolution mechanism (5) mechanisms for cooperation to maintain grid stability and (6) training in energy modeling and forecasting. The World Bank has committed a $350 million credit for the development of WAPP. Of this amount, $40 million has been secured by Ghana to implement the 330 kv Aboadze-Volta transmission line. USAID-funded implementing partners working with ECOWAS and national utility corporations include PA Consulting, Nexant, Associates for International Resources and Development, Purdue University, and the U.S. Energy Association.
Only about one in three ECOWAS citizens currently has access to electricity and analysts predict that electricity demand in the Community will increase by five percent annually over the next 20 years. West Africas total installed electric generating capacity was 9.8 gigawatts (GW) at the beginning of 2003, the majority of which is thermal. Total electricity generation for the region in 2003 was 31.0 billion kilowatthours (Bkwh), with Nigeria (15.7 Bkwh), Ghana (8.8 Bkwh) and Cote dIvoire (5.1 Bkwh) being the largest generators. In 2003, total regional electricity consumption was 28.4 Bkwh, led by Nigeria (14.5 Bkwh, 50.1 percent). Ghana (5.1 Bkwh, 17.8 percent), Cote dIvoire (3.4 Bkwh, 12.0 percent) and Senegal (1.2 Bkwh, 4.3 percent) were the next largest electricity consumers.
West Africa contains approximately 32 percent of Africas total natural gas reserves. Nigeria holds the Communitys largest proven reserves with 185 trillion cubic feet (Tcf). However, proven reserves are also located in CÔte dIvoire (1.0 Tcf), Ghana (840 billion cubic feet; Bcf), and Benin (40 Bcf). Although natural gas is still in early stages of use in the region, several projects are under way that should increase the future use of the resource.
West Africas petroleum refining capacity is concentrated in Nigeria. Nigerias refining capacity is currently insufficient to meet domestic demand, forcing the country to import petroleum products. Nigerias state-held refineries (Port Harcourt I and II, Warri, and Kaduna) have a combined nameplate capacity of 438,750 bbl/d, but problems including sabotage, fire, poor management and a lack of regular maintenance contribute to the current operating capacity of around 214,000 bbl/d. The Nigerian government is granting permits to build several independently-owned refineries in Nigeria. Sapele Petroleum Limited is waiting for final approval to construct a $105-million, 120,000 bbl/d oil refinery in Delta State. The refinery is one of the more probable to be built and could save Nigeria as much as $2 billion in costs for refined petroleum imports. Other ECOWAS refineries are located in CÔte dIvoire(Abidjan, 65,200 bbl/d); Ghana (Tema, 45,000 bbl/d); Liberia (Monrovia, 15,000 bbl/d); Senegal (Dakar, 27,000 bbl/d) and Sierra Leone (Freetown, 10,000 bbl/d). CÔte dIvoires refining facilities consist of the 65,200-bbl/d SIR refinery and an adjacent 10,000-bbl/d asphalt plant (SociÉtÉ Multinationale de Bitumes-SMB) in Abidjan. An oil pipeline connects the SIR refinery to the Lion and Panther fields. The refinery also receives crude oil from Nigeria. The state currently owns 47.27 percent of SIR, and expects to retain a 10 percent interest after privatization. Burkina Faso owns a 5.39 percent stake in SIR, and Total, Shell, ExxonMobil and ChevronTexaco own the remainder. The government of Ghana plans to partially privatize its Tema Oil Refinery (TOR) in 2006 in order to raise money for infrastructure developments in the country. In addition, plans are being made to increase TORs capacity to 100,000 bbl/d. Currently, TORs 45,000 bbl/d capacity meets about 80 - 85 percent of Ghanas demand for petroleum products. Ghana hopes to raise $6 million from the sale of TOR and other state-run businesses.
Oil Production in Nigeria
In recent months, Nigeria has experienced increased pipeline vandalism. In October 2005, a pipeline fire in the south-western Delta State of Nigeria resulted in the deaths of about 60 people. This was followed by a December attack, in which armed men in speed boats dynamited Shells pipeline in the Opobo Channel. In January 2006, a pipeline attack from the Brass Creek fields to the Forcados terminal forced Shell to announce a force majeure on Forcados commitments to end-February. Additional attacks made on the pipeline and the Forcados terminal in February made it necessary for Shell to extend the force majeure beyond the end-February date. Shell estimates that more than 450,000 bbl/d of its oil production is currently shut-in because of the attacks. A February 2006 attack on the Escravos pipeline, that supplies oil to the Warri refinery, caused the refinery to shutdown. Officials are unsure of how long it will take to repair the damage. Nigeria had re-commissioned the Escravos-Warri pipeline in January 2005 after 18 months of repairing the damage caused by sabotage during the 2003 Niger Delta Crisis. In addition to pipeline vandalism, Nigeria has seen an increase in kidnappings of expatriate oil workers in the Niger Delta region. In January 2006, four foreign employees of Royal Dutch Shell were kidnapped and then held for 19 days before being released on humanitarian grounds. In February 2006, nine additional oil workers were kidnapped in the Niger Delta region. On March 3, 2006, six of the nine hostages were released, with the remaining three being released on March 27, 2006. The Movement for the Emancipation of the Niger Delta (MEND) is taking responsibility for the kidnappings and for blowing up a crude oil pipeline owned and operated by Royal Dutch Shell. Despite recent attacks on Shells oil facilities in the Niger Delta region, the companys deepwater Bonga field began producing oil at the end 2005. Bonga is estimated to hold recoverable reserves of 600 million barrels of oil. At peak production, the field will produce around 225,000 bbl/d and 150 million cubic feet (MMcf) of natural gas. Oil from the field will be stored in a floating production, storage and offloading (FPSO) unit, with a storage capacity of 2.0 million barrels.