Analysis: Other Countries Fail to Follow U.S. Lead on Drilling Moratorium

The six-month offshore drilling moratorium imposed by the Obama administration due to the April 20 Gulf Coast oil spill remains in place, but foreign countries have failed to follow the U.S. reaction to the oil spill by shutting down offshore drilling.

The Institute for Energy Research reports that countries with offshore oil resources do not intend to follow the U.S. in imposing a moratorium on offshore drilling, nor are they slowing progress towards exploration and development of offshore oil resources in the Gulf of Mexico and elsewhere.

Meanwhile, the U.S. oil industry will have to contend with new rules for offshore drilling, including provisions on workplace and drilling safety, with no date for the termination of the moratorium. According to Ken Salazar, Secretary of the Department of the Interior, "Under these new rules, operators will need to comply with tougher requirements for everything from well design and cementing practices to blowout preventers and employee training."

The newly appointed Director of the Interior's regulatory agency, Michael Bromwich, doesn't think much drilling will be evident even a month after the moratorium is lifted. Although the moratorium does not affect shallow-water drilling, permitting of those projects has been slowed by the Department of Interior because of new safety requirements and approvals by the federal government, which is probably also the Interior's agenda for deepwater projects.


The Deepwater Horizon incident has not deterred Brazil from pursuing its exploration plans to tap the nation's deepwater offshore reserves, which are estimated to total more than 30 billion barrels of oil equivalent. Probably the largest oil find in more than 20 years is the Tupi offshore oil field, off the coast of Rio de Janeiro. Tupi is in ultra-deep water, below a 6,561 foot (2,000 m)-thick layer of salt, which only the most advanced-and expensive-drilling rigs can penetrate The field contains at least 5 to 8 billion barrels of recoverable oil. In March 2009, Brazil's Energy Minister said the country would need $270 billion over 10 years to develop its deepwater reserves.


Petrobas, the semi-private Brazilian company that controls most of the rights to drilling at Tupi, just raised $70 billion dollars in the world's largest share offer to help finance its expansion plans and to help pay down its debt. Last year, it borrowed a record $30 billion, including debt issues, bank loans, and an oil-for-loan deal with the China Development Bank.

The China Development Bank agreed to lend $10 billion to Petrobas in exchange for increased oil exports. Petrobas and Sinopec (the China Petroleum & Chemical Company) signed a long-term agreement for Petrobas to export 200,000 b/d of oil to China between 2010 and 2019. The Export-Import Bank of the United States, a federal bank of the U.S. government, whose mission is to "assist in the financing of U.S. goods and services to international markets," issued a $2 billion loan to Petrobas for offshore exploration and development—with the approval of Ex-Im's bipartisan board. The majority of the Export-Import Bank's financing comes from loans from commercial lenders.


Growing energy demand in China, where 5 million b/d of oil were consumed in 2009, has prompted China to expand its oil and gas exploration efforts. China has spent nearly $200 billion on oil deals during the past few years, joining with more than 19 countries, including Russia, Turkmenistan, Kuwait, Yemen, Libya, Angola, Venezuela, and Brazil, and paying for exploration, production and infrastructure construction, as well as extending loans for energy. China also has expanded into oil sands production with Sinopec International Petroleum Exploration and Production Company buying for $4.65 billion a nine percent interest that ConocoPhillips holds in Syndrude.


The Chinese government also is allowing Chevron and BP access to drill in the deepwater South China Sea after attempts decades ago to drill its shallow waters turned up dry wells. The Gulf oil spill has not deterred the Chinese government from allowing BP to participate in drilling off its coast.


Cuba's current production of 60,000 b/d comes from onshore wells, but the country is planning to drill seven test wells in the Gulf of Mexico in 2011 and 2012. A consortium of companies from Spain, Norway, and India is planning to drill at least one well early next year using a Chinese-built rig owned by a unit of the Italian oil company Eni, and Malaysia's Petronas is planning to use the same rig off Cuba, the Institute of Energy Research notes.


Cuba has leased 21 of the 59 blocks it owns in the Gulf of Mexico to seven companies. Venezuela's state oil company (PDVSA) is also planning to drill an exploratory well next year, and companies from Vietnam and Brazil have also leased blocks. Companies from Russia, China, and Angola are negotiating exploration rights.

Cubapetroeo, Cuba's oil company, estimates that Cuba has up to 20 billion barrels of oil in its offshore areas, although the U.S. Geological Survey estimates the amount to be only 4.6 billion barrels. Some of this drilling will take place within 40 miles of the U.S. coast of Key West, Florida.


Last year, the Export-Import Bank of the United States provided Pemex, Mexico's state-run oil company, with about $1 billion in direct loans for development of new projects of Pemex Exploration and Production and the Cantarell offshore oil fields located in the Bay of Campeche, about 62 miles (100 km) off the Yucatan Peninsula in the Gulf of Mexico.


Pemex is the largest borrower of the Export-Import Bank of the United States, having borrowed $8.3 billion between 1998 and April 2009 for oil and gas exploration, development, and processing projects. In 2009, Mexico was the second largest supplier of oil imports to the United States, behind only Canada.


Germany proposed a ban on deepsea offshore oil drilling at a recent meeting of OSPAR, a group including the European Union and 15 countries that monitor Europe's coastlines, but member countries Norway, Denmark and Britain nixed the proposal. The issue has been postponed until January 2011, when President Obama is expected to report on the findings of the Deepwater Horizon oil rig investigation



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Steve | Oct. 4, 2010
A very interesting summery though no clarity was provided on countries with Safety Case Regimes. Unfortunately once again we see the same old comments about getting people back to work being more important than getting things right, one could say that the former is why the US oil and gas drilling industry has developed such a very poor reputation as cowboys stuck in the past quite sad really

Robert | Oct. 4, 2010
Unfortunately, this is consistent with this administrations despicable agenda and should come as no surprise to anyone that has been paying attention over the last two years. Its nothing more than a bow to the greenies amongst their constituents, and is to the detriment of the country as a whole.

| Oct. 4, 2010
I think it is ridiculous that the US shuts down highly qualified and skillful companies from drilling offshore and yet other countries - like Mexico or Russia etc can set up drilling rigs 40 miles off Key west and drill. Those companies are not more competent than Exxon, Cheveron, Conoco, etc. BP did some foolish things bypassing safety checks and controls and did not maintain the blowout preventor. BP is paying for its shortcuts and industry as a whole has had a wake up call to not take short cuts in high risk situations. The drilling moratorium should be lifted and get everyone back to work.

Brian Partridge | Oct. 4, 2010
The U.S is helping other countries with there offshore exploration plans, but it is pretty well suspending its own, that doesn't make any sense. Forget Mexico and Brazil, what about us?

Steve Lee | Oct. 4, 2010
It is with sadness I must admit our own administration starting with the very head are bent on destroying our own country, definitely not our best interest. It is not built with good sense but promoting a different agenda. Our hope is "changing guard" comes in a couple of months.

John | Oct. 1, 2010
Good summary. However you fail to note that one reason why other jurisdictions, particularly Europe, have not acted to increase regulation is because they arguably have much stronger regimes already. StatOil, a European operator, is already describing its background in the North Sea as giving it a sufficient experience and reputation to move into the GoM and other areas.

Kevin Smith | Oct. 1, 2010
When a plane crashes do we cancel all flights? Mistakes were made on the Deepwater Horizon and BP, Transocean and others are paying dearly for their decisions. But the rest of the world just keeps on drilling. We are addicted to fossil fuels and the rest of the world is becoming more and more addicted with each passing year. Our current administration is making the entire domestic offshore industry pay for the mistakes made on one drilling rig. We do not have alternative energy sources that can replace fossil fuels. We are not going to quit driving cars and trucks in this country and we want every product imaginable at our finger tips and demand these products be made available at low prices. I hope the citizens and our government can appreciate what has been done by BP to right the wrongs of the recent oil spill. I am sure that it was a wake up call to the entire industry, but our government needs to get out of the way and let us resume drilling in the deep waters of the Gulf of Mexico. The rest of the world is demanding more energy as they become consumers like the citizens of the United States. We can all do our part to try and consume less energy, but most of us are consuming more with each passing year instead of less. Unless we are willing to change our daily habits, we need to continue domestic drilling both on land and at sea. I am sure this will not be the last disaster and I hope that the industry has learned from this devastating experience. Until we all are willing to change our way of life, drilling is our only option.


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