By Eric Vandenbroeck and co-workers

The Making of a New Oil Spill

About 150 miles southeast of the US city of New Orleans, Shell’s newest oil platform looms above the choppy waters of the Gulf of Mexico. Dubbed Vito, the structure embodies a new approach to offshore drilling both for the company — and the industry at large.

Vito represents the future of Shell in the Gulf of Mexico, she is faster, leaner, creates less emissions, and is technologically more advanced than earlier platforms.

The industry’s pitch to investors is that new technologies and efficiency gains can slash the hefty price tag of deep-water drilling, while dramatically lowering emissions during the extraction process

The surge in interest in offshore exploration is a reversal of fortune for a source of oil removed from the spotlight in the wake of catastrophic spills, weaker prices, and the arrival of the US shale boom.

Oil companies have pushed into deeper waters in the Gulf of Mexico Gulf of Mexico.

Below are permanent deep-water structures:

But plumbing the depths for hydrocarbons is back in vogue. Shale’s once explosive growth has faded and companies are now searching for new sources of oil and gas. Russia’s full-scale invasion of Ukraine caused prices to soar, leaving companies awash with cash at the same time many governments are prioritizing energy security over climate targets.

This has encouraged the industry — and its investors — to greenlight new ventures, speed up their exploration of new frontiers in Africa, South America, and Asia, and drill deeper into the seabed in search of discoveries.

Companies will pour almost $104bn into the space this year, according to estimates from Rystad, up by almost half since 2020 and the highest level since 2016. By 2027, that figure will rise to nearly $140bn. The uptick has fueled a rush for equipment: last year, the price of hiring drill rigs hit a nine-year high, according to data provider RigLogix.

However, the industry faces opposition from environmentalists alarmed at the prospect of locking in billions of barrels of extra production that will continue pumping for years to come.

 As world leaders gather at the UN COP29 climate summit in Azerbaijan, green groups say industry is ignoring a key pledge by governments to transition away from fossil fuels.

They accuse Shell and BP of diluting their climate targets and worry that drilling to new depths could trigger another environmental crisis like the 2010 Deepwater Horizon disaster, the worst marine spill in history, which killed 11 people.

Shell’s 22,000-tonne Vito platform is part of a new generation of facilities being deployed, but green groups say the industry is ignoring a key pledge by governments to transition away from fossil fuels.

Those fears have been exacerbated by the re-election of Donald Trump, who has promised to loosen environmental rules and allow companies to “drill, baby, drill”. But analysts expect his presidency to have little impact on production in the near term. Companies focused on delivering returns to shareholders are reluctant to open the taps too quickly, which would risk oversupplying the market and hurting profitability

It appears that Big Oil’s attitude shows a lack of imagination beyond oil and gas, at a time when the world must rapidly transition away from hydrocarbons, these companies are betting on decades-long fossil fuel projects and pouring huge amounts of capital into a market that will start declining before the end of the decade.

Yet, for companies, the potential prize is immense. Off the coast of the South American nation of Guyana, a brawl over the largest oil find in a generation is playing out between ExxonMobil and Chevron, the two biggest western oil companies.

Exxon is seeking to block its smaller US rival from buying into the so-called Stabroek Block, through its $53bn acquisition of Hess, which holds a 30 percent stake in the project. Exxon, which owns 45 percent, insists it has a right of first refusal and has launched arbitration proceedings.

The project is estimated to generate $170bn in profits between 2024 and 2040 for Exxon and its partners. Guyana will receive $190bn over the same period, according to Wood Mackenzie forecasts.

The discovery, which is rapidly transforming Guyana into the world’s newest petrostate — has spurred new exploration by oil majors and some national oil companies in frontiers from Brazil to Angola. 

Last month, France’s TotalEnergies greenlit its $10.5bn GranMorgu project in Suriname, which borders Guyana. Off the coast of Namibia, Portugal’s Galp, along with Shell and Total, have also made huge discoveries.

The renaissance in offshore drilling has big geopolitical implications. For the past 12 years, the shale patch, dominated by the US, has been the biggest source of Western oil growth and transformed the US into the world’s top supplier.

But next year, deep water is predicted to outstrip shale as the biggest source of production growth outside the Opec cartel, giving it a crucial role in Western capitals at a time of growing international tension.

In the Vito control room, dozens of screens flash showing metrics on production, emissions, and efficiency. But, in reality, the platform’s wells are controlled from its real nerve center, back in New Orleans.

All of its operations can be managed from shore, where engineers use virtual reality headsets to carry out checks and direct changes — keeping the number of people needed on board the platform to a minimum. Drones carry out tank inspections that would previously have fallen to people.

At the same time, equipment has been stripped back to the essentials, with a single production train and no redundant backups. “In the decision-making around Vito, it was: take it all back down to bare bones,” says Colette Hirstius, head of Shell’s Gulf of Mexico operations.

At 22,000 tones, Vito, which began pumping oil last year, is a third of the weight of Shell’s Appomattox, brought online in 2019. Vito is designed to hold 60 people onboard, versus 180 on its predecessor. But it is powerful enough to pump up to 100,000 barrels of oil equivalent (boe) a day, a capacity equal to about 60 percent of Appomattox’s.

The industry’s new offshore model means it can operate much more efficiently than it did before. The average cost of developing deep water fields has almost halved over the past decade from around $14/boe to $8/boe, according to Rystad.

Technological advances are also allowing the industry to tap previously out-of-reach barrels, in deeper waters and under ultra-high pressures.

More than 130 miles from Vito, Chevron in August started production at its latest platform, Anchor, which is recovering oil from a reservoir six miles below the water surface.

However, the industry is haunted by the explosion on the Deepwater Horizon drilling rig in BP’s Macon

do prospect. Over 87 days, 134mn gallons of oil poured into the northern Gulf — killing up to 800,000 seabirds and almost wiping out the Rice’s whales.

The claim is that what is fundamentally different and changed is the mitigations in place the management of that risk and the rigor with which that risk is managed.

Green activists worry that drilling to new depths could trigger another environmental crisis like the 2010 Deepwater Horizon disaster, the worst marine spill in history.

Opponents of the renewed appetite for offshore drilling are bothered by a broader challenge: by spending billions of dollars on multi-decade projects, companies are locking in oil production at a time when the world urgently needs to transition away from fossil fuels.

The International Energy Agency said in May 2021 that if the world is to keep temperature rises below 1.5C by 2050 then no new fossil fuel exploration should be carried out.

A report last month from the World Meteorological Organization showed emissions hit a record high in 2023, with carbon dioxide concentrations increasing by more than 11 percent in 20 years — faster than at any time in human history.

Oil companies are stepping up investment in deep water production even amid a climate of rising carbon emissions.

Environmentalists reject the industry’s green pitch, countering that it does not matter how low carbon a company’s production is when most of the emissions come from the burning of the oil.

The industry’s argument would be valid “if a project somewhere else was then stopped because of this international oil company doing this low operational emissions project, but the reality is that doesn’t happen.

 

 

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