To be or not to be ...
Sustainability a question of supply and demand?
-- a _kt75 | reprint
Global demand for energy is inexhaustible. In developed countries, populations continue to rise putting pressure on water, sanitation and other requirements. A growing taste for comfort and convenience demands air conditioning and heating systems, transport solutions, entertainment activities and a range of other related energy-hungry luxuries. The less developed world is also becoming more sophisticated and more populous and demand is growing from the BRIC nations, South Africa and other areas to place even more pressure on natural resources.
Renewables such as solar, wind and tidal options present an alternative to traditional fossil energies, but these are expensive and still largely in their infancy. This means the world must continue to look to oil and gas for the immediate solution. Existing oil fields in the more accessible regions are now mature, so the options are to improve techniques to squeeze the remaining reserves from these fields or to explore more remote parts of the world.
Going farther afield into deeper and less accessible offshore oil fields presents a range of challenges. Not least is the remoteness itself. Drilling in the Brazilian Basin involves using difficult deepwater techniques, but these fields have an established network of support facilities to hand. Exploring in the polar regions, the Falkland Islands or East Africa may offer no such support. Establishing an offshore operation requires support vessels, port facilities, warehousing, workshops, a supply chain and, of course, facilities for the workers themselves. And when the product is extracted, a shore-side production and transport infrastructure will also be needed. This support infrastructure comes at an enormous cost which is, itself, increased if the region in question lacks basic services such as a road network or any domestic facilities. With an offshore operation costing anywhere up to US$ 15 billion, the added cost of building the initial shore-side infrastructure is often enough to make some fields uneconomical to exploit.
Questions of investment
This raises the question of who pays. In general, the asset holder – the entity developing the field – pays for the offshore infrastructure required to extract the energy. But is it fair that they also pay to create the shore facilities required to support the offshore work, particularly if local services are non-existent? The answer is complex and involves many issues including the local government’s ability, or willingness, to invest. But without such investment, an offshore operation can either be stifled or hampered by costly delays, particularly if the supply base is some days sailing away.
With billions spent on developing and installing an offshore facility – and, perhaps, shore-side infrastructure as well – the asset holder must be assured that they will be allowed to continue their work without interference or significant increases in tariffs and taxes. Less stable regimes are sometimes a cause for concern.
Political implications present their own particular challenges. Oil majors have less clout than in years gone by and national oil companies and local governments are exerting more influence. Governments issue contracts, set tariffs, impose taxes and can even force mergers, partnerships or nationalisation. Political tensions between countries can cause difficulties and delays with nations competing with their neighbours to provide optimum operating environments in return for a slice of the action. But less experienced governments might insist on a price that makes extraction just too costly. Read on...
