The Gulf of Mexico is one of the nation's most important natural gas supply areas. Offshore production in the Gulf provides U.S. markets with 26.5 percent of indigenous gas supplies, and forecasters are predicting significant increases in U.S. gas production from the region. This study found that the natural gas industry could spend as much as $7.8 billion on pipeline construction projects over the next 20 years to accommodate offshore production in the Gulf of Mexico. This investment will be in addition to the dollars spent for expected exploration and development of offshore reserves.
The natural gas industry has an extensive 14,554 mile offshore pipeline network in place today to bring Gulf supplies onshore to processing plants, market hubs, and downstream pipeline interconnections. These pipelines are operated by 157 companies. Of the existing offshore pipelines, traditional interstate pipeline companies own 48 percent of the facilities, primarily in Central and Western Louisiana waters. Pipelines' affiliates own 5 percent of the facilities. Producers own 47 percent of facilities, concentrated primarily in Eastern Louisiana and Texas waters, but they also own the majority of the pipelines in the newer Eastern Gulf areas.
Since 1995, the gas industry has installed about 3,568 miles of the new pipe in the Gulf at a cost of $2.4 billion. Developement of offshore pipelines during this period has been characterized by growing producer investments. Producers own 73 percent of the pipelines built since 1995, whereas they owned only 38 percent of the mileage built before 1995.
Production from the Gulf in 2000 was 5.3 trillion cubic feet (Tcf). Estimates of the Gulf resources are large. Current production levels of 5 Tcf can be maintained or increased for years, with resources up to 140 Tcf. The Department of Energy forecasts that offshore production will rise to 6 Tcf in 2010 and 7.2 Tcf in 2020.
Fifity-one onshore gas plants are identified as processors of offshore production. These are located in Alabama, Louisiana, and Texas, and have a combined capacity of over 20 Bcf per day. This capacity compares with offshore production of 14.5 Bcf per day, and pipeline capacity to transport from the Gulf to onshore points of 28 Bcf per day.
There are abundant development opportunities for resources in the Gulf. Much of the Gulf's potential resource base is in deepwater areas. The MMS has been leasing OCS acreage since the mid 1950's. Currently, there are 7,564 outstanding leases. The majority (73 percent) of these leases are not producing, which indicates that substantial exploration and development opportunities exist.
Deepwater areas have the highest proportion of non-producing leases, and the production potenital is quite high compared with the other, more mature, areas. The current deepwater production is 20 percent of the total, up from about 10 percent in 1997. This figure could reach mor than 60 to 65 percent, based on the location of the potential resource base estimates.
Two other areas of production interest in the Gulf of Mexico fare the Eastern Gulf and subsalt trend development. Eastern Gulf resource discoveries are particularly significant in the Mobile Bay area, which contains the Norphlet trend, with 7 to 8 Tcf of potentially recoverable reserves. The subsalt trend offers substantial promise in light of recent drilling successes, particularly the Mahogany project being developed by Philips, Anadarko, and Amoco in the Ship Shoal area.
The production of lease holding in the Gulf of Mexico are not overly concentrated within a few large companies, yet the combined market share of the 10 largest producers in the region exceeds the U.S. average. The 10 largest lease owners hold 60 percent of the federal acreage, and the 10 largest companies supply 46 percent of the total offshore leases under production. For the total U.S. onshore and offshore, the market share for the 10 largest gas producers is about 34 percent.
Clearly, gas resource development is driving pipeline developement. Already, 1,327 miles of new pipe have been planned, primarily by producers, at a total cost of $1.7 billion. The study predicts that another 11,000 miles of pipe will be needed in the region over the next 20 years, at a cost of $6.7 billion for a total of $7.8 billion.
As to the location of the proposed pipeline capacity, 31 percent is located in the Central Louisiana region. Eastern Louisiana comes in with 29 percent, while Western Louisiana comes in at 21 percent. Texas, and the Eastern Gulf has 12 and 7 percent, respectively. Over time, these investments will be in deepwater areas, particularly in the eastern protions of the Gulf.
Of the 1,676 miles of proposed pipeline facilities, major oil companies and independent producers own 74 percent. Traditional interstate pieplines own only 8 percent of the planned pipelines, with pipeline affiliates owning 18 percent.
Producers are attracted to offshore pipeline investments for several reasons. First, they see it as a business opportunity. They can invest in pipelines and avoid paying others for transporation services. In addition, the producers see that greater contracting flexibility is being allowed for new offshore pipelines that are not encumbered by regulation.