Special Edition TipSheet: Gulf Region Energy Issues

August 6, 2014

By Randy Lee Loftis, Environmental Writer, The Dallas Morning News

ConocoPhillips's Magnolia tension-leg platform, about 180 miles south of Cameron, La.          Credit: NOAA.

 

Introduction and Orientation

Along the petrochemical corridors on or near the Gulf coasts of Louisiana and Texas there’s an old saying: That odor in the air isn’t really crude or benzene or sulfur. It’s money.

An overflight by aircraft or Google Earth brings home that fundamental lesson of human history. Sprawling complexes of pipes, spindly towers and open flares tell the tale. So do thousands of lonely outposts of risk anchored in the open water. So do miles-long lines of tankers awaiting their turn in port. About half of the U.S. oil and gas production, and most of its offshore production, occurs in the Gulf region.

The Gulf’s oil and gas infrastructure is both a hard reality in itself and a symbol of something bigger. While the energy future probably looks more like a Tesla, the present-day global geopolitics of energy still looks more like that 2015 Dodge Challenger SRT Hellcat about to hit the streets: a two-ton beast that converts energy into terrifying speed in a much grittier, more guttural and more polluting manner. It’s something dominating, unapologetically intimidating, and very, very powerful.

What follows is a brief overview of Gulf energy issues and trends and some journalistic lines of inquiry for covering the giant.

 

History

As in several other places, geology, history and politics joined to make the Gulf of Mexico and its shoreline states, chiefly Louisiana and Texas, a major center for producing petroleum and its relatives.

It was Jan. 10, 1901, when a drilling crew south of Beaumont, in far southeastern Texas, hit a treasure. Dubbed Spindletop, the well was the first gusher in the silent-movie sense. Oil, mud and water rushed out. Eight months later, near Jennings, La., the Heywood #1 Jules Clement well became the first successful oil completion.

Early explorers employed “creekology”: Find a creek with some natural oil seeps and drill there. It was remarkably successful at first. Eventually, geologists learned to look for certain sedimentary strata, salt domes and fault zones — still today the keys to locating deposits. In 1923 came the technology to use seismic surveying to find those features, a technique that was in universal use by 1950.

All production was onshore until 1934, when the precursor of Texaco drilled a mile offshore. Until 1947, no drilling took place beyond the sight of land. Now it’s routine, if still frequently dangerous.

Refineries and related chemical plants came soon after the drilling. The fundamental principle of refining crude oil is to heat the oil in towers. The components separate and rise at different temperatures and are drawn off at different elevations of the tower. Those are the tall spindles seen at refineries.

Some historical resources on production in Louisiana:

Louisiana State University historian Michael Pasquier has researched the cultural history of oil production in the state.

And in Texas:

 

Environmental battles

The record on the Deepwater Horizon calamity is too deep and wide to handle in a tipsheet, but many more generic resources about offshore oil and gas are available. Here is a small sample.

From environmental groups:

From industry groups:

 

Offshore Orientation

After the Deepwater Horizon disaster on April 20, 2010, the world began to understand what the region’s residents had known for a half-century: There’s a lot of dangerous, lucrative and environmentally risky business going on far from shore. It is important to remember that the Deepwater Horizon explosion killed 11 workers, ages 22-56. Six of them had been scheduled to leave the rig the next day.

Oil and gas companies have heavily exploited the more accessible waters of the inner shelf. From many locations, rigs are visible from the shore. The Gulf stays relatively shallow until it drops suddenly, with the greatest plunge to the ocean floor still up for some debate but generally put at 13,000-14,000 feet.

Deepwater drilling is defined as a depth greater than 1,000 feet, but that’s a minor task for today’s crews. The world record for a floating production platform is the Stones project, an in-progress Shell venture 200 miles south of Louisiana. The depth to the ocean floor is about 9,500 feet (a mile is 5,280 feet), while the oil to be tapped is an additional 17,000 feet below the floor. Shell says it expects to produce from the well in 2016.

Here is some background on Shell’s Stones project:

Altogether, the Gulf has more than 3,700 active U.S. offshore rigs. It has about one-sixth of U.S. proven reserves of crude oil and about one-eighth of the nation’s proven natural gas.

The Energy Department’s Energy Information Administration has extensive information on Gulf offshore production and reserves.

The Interior Department leases federal waters for oil and gas and oversees operations. One outcome of the Deepwater Horizon explosion and leak was the dismantling of the department’s Minerals Management Service, which had been roundly condemned for shoddy recordkeeping and a too-cozy relationship with the industry it policed. (Sometimes the coziness was actual, as in reports of sex between certain of the regulators and regulated.) Now the former MMS’ functions are divided among two new offices, the Bureau of Ocean Energy Management and the Bureau of Safety and Environmental Enforcement.

BOEM’s Gulf region is here. Its counterpart at BSEE is here.

Gulf states control oil and gas development in their jurisdictional waters. According to the Energy Information Administration, those waters account for roughly 1 percent of proven Gulf oil, condensate and gas reserves.

 In Louisiana, the job is housed at the Department of Natural Resources’ offices of conservation; mineral resources; and coastal management.

In Texas, the main oversight is by the General Land Office, with some involvement by other agencies.

 

Onshore

The onshore energy infrastructure is also huge. Gulf region refineries can process 8 million barrels of crude oil per day, 45 percent of all U.S. capacity. The biggest on the Gulf and in the U.S. is Motiva Enterprises of Port Arthur, Texas, with daily capacity of 600,000 barrels.

The full list of refineries, owners and capacity is from the EIS.

The Motiva refinery, a joint venture of Royal Dutch Shell and Saudi Aramco, is noteworthy for discounting the frequently heard political claim that environmental restrictions have blocked refinery expansion and harmed consumers through higher gasoline prices.

The $10 billion Motiva expansion, Texas’ biggest ever manufacturing project, began in 2007 and was finished in 2010. The expansion more than doubled the refinery’s capacity, passing the previous biggest refinery, ExxonMobil’s Baytown, Texas, facility.

But as NPR pointed out, gasoline prices don’t drop just because some new equipment came online.

In addition to crude oil, natural gas is a key driver of the Gulf coast’s industrial economy. Ethane, a component of natural gas, is a feedstock for many chemicals. Low gas prices resulting from the shale gas boom have boosted chemical production.

PRI’s Living on Earth reported on the tie between shale gas and chemical production in May..

Here’s one report on how the availability of ethane has attracted foreign capital to the U.S.

 

Natural Gas Exports

One additional factor in the Gulf’s energy profile is the export of natural gas. The shale boom, by driving down U.S. gas prices, has increased industry and political pressure on the Obama administration to speed up approvals of exports of liquefied natural gas. Gas produced cheaply in the U.S. could be liquefied (thus reducing its volume), shipped out of Gulf ports and sold at much higher prices in, for example, Japan.

In May, the Energy Department gave a nod to the strongest players in the export game by changing the approval process for export applications. The shift gives more importance to environmental impact statements from the Federal Energy Regulatory Commission, which Congress gave jurisdiction over siting and construction of offshore and nearshore LNG import/export facilities.

When U.S. gas prices were high, corporations built facilities for importing cheaper gas from overseas. Now that U.S. prices are low, the industry wants to convert many of those to export terminals. The combination of FERC facility construction approvals and DOE export approvals is likely to bring to the Gulf both new commerce and new debates about public safety.

Here’s FERC’s latest map of proposed export terminals.