Shuttle Tankers: Gulf's Newest Deepwater Transport Wrinkle

Abstract: While nothing's really new about lightering oil from offshore fields to the onshore refinery gate, the question is: Would producers ever favor shuttle tankers over pipelines in the Gulf? And if so, when?

Analysis: The long-term future for crude oil and, ultimately, natural gas production in the Gulf of Mexico, say the experts, lies in deepwater and ultra-deepwater. In fact, more than 30 deepwater Gulf oil discoveries are scheduled to be ready to produce between now and 2007. More such fields likely will be added as exploratory drilling proceeds in its slow but deliberate way.

However, a growing number of discoveries are being made in water depths that begin to challenge the economic viability of using the predominant mode of transporting Gulf oil and gas to shore, which is subsea pipelines. And while a number of deepwater lines have been built recently in the Gulf, and several more are being planned, each new deepwater discovery obliges both operator and potential pipeline transporter to stare dispassionately at the numbers. For at least some future deepwater fields, much higher pipeline-based transportation costs may compel operators to consider the alternatives.

The problem is, there really aren't that many alternatives. Absent a pipeline, the only other practical way to get oil or gas from ultra-deepwater to land-based processing points is on the surface, and that calls for structures that float.

Elsewhere around the world, particularly where a deep sea pipeline infrastructure doesn't exist--either because it's in a frontier area or where unsettled politics make it inadvisable to build anything that links with the shoreline--producers install a floating storage facility from which the produced oil is loaded into tankers and "shuttled" (or "lightered") to where refineries abound or where export markets can be accessed more easily. In certain regions, such as off West Africa, in some areas off Southeast Asia, and even in the far reaches of the North Sea, operators routinely use offshore field-based floating production storage and offloading (FPSO) vessels in which to hold produced crude, to process it a bit, then dispatch it to shore via shuttle tankers.

In the Gulf of Mexico, however, producers are only now grappling with the viability of using FPSOs serviced by shuttle tankers as an alternative to pipelines. Even though U.S. offshore regulators a couple of years ago approved the general idea of using them in the Gulf, no producer has yet formally announced an intention to do so. Several companies have been formed to build and offer shuttle tankers to the offshore production market, however. And they have some new ideas on how to use them.

While scenarios do exist under which a mix of both pipeline and shuttle tankers might be employed in deepwater fields, actually choosing one over the other would be a tough sell for a lot of reasons.

For one thing, FPSOs may not be needed in the deepwater Gulf. Most Gulf fields located in, say, 5,000 feet of water or more today are produced from subsea wells tied back either to distant fixed production facilities or to nearby floating production systems (FPSs) moored to the bottom. These include semisubmersible production systems, tension leg platforms, and spar platforms, with permutations of all three types. In most cases, such floaters are connected eventually by intermediate lines to "hub" production facilities in shallower water, where the oil then enters conventional export pipelines to shore. In any case, such floating facilities eventually are tied back to the existing pipeline infrastructure for transport to refinery gates along the coast. So far, apparently, FPSOs haven't been essential, so there's been no concurrent need for shuttle tankers for individual field production.

What's more, the shuttle tanker industry believes that at certain water depths and in areas where sufficient pipeline infrastructure does not exist--namely in the extreme deepwater and ultra-deepwater areas of the Gulf--production could be loaded directly into shuttles and taken to shore at a cost that could be competitive with and perhaps even lower than that of purpose-built pipelines. Again, no need for an FPSO, much less a pipeline.

In any case, the opponents in this face-off haven't yet seen fit to get competitive. But the prospect hasn't been ruled out.

Last week, the Gulf Coast Section of the Society of Petroleum Engineers (SPE) staged a one-day workshop in Houston on the emerging challenges to oil transportation in the Gulf. While workshop speakers and panelists included members of the offshore producing, pipeline, and shuttle tanker components of the industry, the dialogue was to be open, with conclusions reached irrespective of attendees' and panel-members' company affiliations. Since the press was not invited to the workshop, it is assumed that it was as nonpartisan and objective in content as possible.

A post-workshop press "briefing" was held, however, and a number of workshop speakers and panel moderators were on hand to field journalists' questions. The workshop principals included James Hostetler of Poseidon Pipeline Co., Denver; Kim Limmex, New Orleans, and Steve Smetana, Houston, both of Shell Exploration & Production, Inc.; David Saylor, Unocal Deepwater USA, Houston; and Peter Lovie, American Shuttle Tankers, Houston.

Press briefing participants stuck fastidiously to overall workshop issues. They agreed, for instance, that shuttle tankers are a viable choice for moving crude oil and natural gas--including liquefied gas--directly to the onshore processing plant gate, particularly in areas of the Gulf where pipeline infrastructure is sparse. This would include the very deep areas along the Gulf's continental rise and over the deep ocean floor out to some 10,000 feet of water. It also would include those areas in the eastern Gulf, even on the shallower OCS, where past exploration has been minimal and where mountainous seafloor topography may make pipeline construction much more difficult.

They also agreed that areas where future exploration and production may some day resume, such as off the U.S. East and West coasts, which currently are under drilling moratoria, would be appropriate settings for major participation by shuttle tankers.

But all agreed that a number of concerns exist that cloud the issue in the Gulf. For example, few such vessels, designed to specifications necessary for deployment in U.S. waters, have yet been built. Also, though a regulatory framework exists for tanker shuttling requirements under the Jones Act--which restrict all vessels used to transport cargo between U.S. ports to ownership by U.S. citizens, construction by U.S. shipyards, and manning by U.S. crews--have a perceived added cost issue that could affect their use. Furthermore, they said, oil companies as a rule tend to favor pipelines since they've built up decades of experience using them in the Gulf. However, they also acknowledged that the adverse effects of deepwater temperatures and pressures on pipeline flow assurance also are an important factor, and the cost of large-diameter lines grows exponentially in deepwater, as do tariffs for access to them.

These and other issues, including the effects of weather on shuttle scheduling and safety and the groundwork involved in shuttle permitting, join with economic drivers to further cloud the shuttle concept, they noted.

However, the issues favorable to using shuttles lie in the urgency involved in the need for accelerated deepwater Gulf development. Pipeline construction in deepwater is often measured in years, whereas once ordered, shuttle tankers can be built and put in harness in far less time. A few tankers also are less expensive to build than a pipeline. Participants pointed out that since the shuttle tanker concept is no longer linked specifically to FPSOs and other intermediate floating storage modes, their use could lower overall field development costs significantly. They could affect the design and cost of primary offshore production facilities, as well, which could result in even more significant savings to operators as they plan future ultra-deepwater development. Couple that with the possibility of actually leasing such facilities from specialized companies--which is being proposed in some circles, these days--and operators' deepwater development costs could get still another slash.

So, while all agreed that the devil lies in the details, the future of lightering oil and gas from offshore fields to shore via shuttle tankers will depend on which the first operator chooses: conventional pipeline or shuttle transportation--and when the choice is made. From the perspective of the operators--at least, from those who took part in the press briefing--that may be a long time from now. From the shuttle tanker folks' standpoint, it could be sooner than anyone might guess. From the point of view of the pipeline companies, ongoing development of deepwater pipeline technology might turn shuttle tankers into a side issue.

One thing's for sure, however, the pipeline-versus-shuttle tanker "potato" is a hot one, and there's a lot at stake for all involved. So, it's bound to be tossed around quite a bit during the next year or so, as offshore operators continue to tackle the challenge of producing oil and gas from the Gulf's deepest blue waters.