"The crunch on rigs is everywhere"

There are a number of compelling reasons why it's imperative that the U.S., indeed the world immediately develop and adopt a strategy for mitigating climate change and achieving energy security. First and foremost there are the issues of time and resources. Both are in limited supply these days.

As the following article demonstrates, once a decision has been made as to which course of action to follow (in this case it's unfortunately to drill for more oil), industry must be mobilized along its entire value/service chain. That includes marshaling all the necessary natural, technical and human resources. This is far from trivial. As we've learned during World War II, achieving strategic objectives often requires making major sacrifices. In some instances, tanks were made instead of automobiles.

According to a recent report by the U.S. Department of Energy the country could generate 20% of its electricity from wind by the year 2030. This will require the installation of approximately 75,000 turbines. Many of those turbines would have to be deployed offshore which means special-use vessels would have to be built. The same issue that threatens to slow down the deployment of oil rigs could plague the wind industry as well. (GW)

Dearth of Ships Delays Drilling of Offshore Oil

By Jad Mouawad and Martin Fackler
New York Times
June 19, 2008

As President Bush calls for repealing a ban on drilling off most of the coast of the United States, a shortage of ships used for deep-water offshore drilling promises to impede any rapid turnaround in oil exploration and supply.

In recent years, this global shortage of drill-ships has created a critical bottleneck, frustrating energy company executives and constraining their ability to exploit known reserves or find new ones. Slow growth in oil supplies, at a time of soaring demand, has been a major factor in the spike of oil and gasoline prices.

Mr. Bush called on Congress Wednesday to end a longstanding federal ban on offshore drilling and open the Arctic National Wildlife Refuge for oil exploration, arguing that the steps were needed to lower gasoline prices and bolster national security. But even as oil trades at more than $135 a barrel — up from $68 a year ago — the world’s existing drill-ships are booked solid for the next five years. Some oil companies have been forced to postpone exploration while waiting for a drilling rig, executives and analysts said.

Demand is so high that shipbuilders, the biggest of whom are in Asia, have raised prices since last year by as much as $100 million a vessel to about half a billion dollars.

“The crunch on rigs is everywhere,” said Alberto Guimaraes, a senior executive at Petrobras, the Brazilian oil company that has discovered some of the most promising offshore oil but has been unable to get at it.

“Almost 100 percent of the oil companies are constrained in their investment program because there is no rig available,” he said.

As a result, drilling costs for some of the newest deepwater rigs in the Gulf of Mexico — the nation’s top source of domestic oil and natural gas supplies — have reached about $600,000 a day, compared with $150,000 a day in 2002.

These record prices have spurred a new wave of drill-ship construction. This boom could lead to renewed offshore oil exploration that would eventually bring more supplies to the oil market, and push down prices.

Already, 16 new drill-ships are scheduled to be delivered to oil companies this year — more than double the number delivered over the last six years combined. In fact, 75 ultra-deepwater rigs should be delivered from 2008 to 2011, according to ODS-Petrodata, a firm that tracks drilling rigs.

Shipyards from South Korea to Norway are working overtime to meet a huge influx of orders.

Robert L. Long, the chief executive office of Transocean, the world’s largest drilling company, said he has nine deepwater rigs under construction, eight of which are already under contract for periods ranging from four to seven years once they leave the shipyards. He expects to receive the ships between the beginning of 2009 and the end of 2010.

Transocean believes the deepwater market will continue to be constrained until at least 2012. Over three-quarters of the drill-ships currently under construction have already been contracted to oil companies eager to benefit from triple-digit oil prices, Mr. Long said.

Petrobras, whose full name is Petróleo Brasileiro, is expected to drive much of the growth in the booming new market. The company has outlined an aggressive program to increase its drilling capacity, and plans to contract or build 69 deepwater drill-ships by 2017.

Brazil stunned the oil world when it announced the discovery of a vast oil field 200 miles south of Rio de Janeiro last November, turning the country’s deep blue waters into the world’s most exciting oil frontier. Energy experts said the field could turn out to be just a small part of the largest oil discovery in 30 years.

But seven months later, the problem is still how to retrieve it. Petrobras has only three rigs capable of drilling in waters that exceed 6,500 feet, like the sites of the new fields.

But drilling constraints are not the only problem facing international oil companies, which are seeking to expand at a furious pace after a decade of underinvestment in the 1990s. They have also had to contend with a doubling of development costs across the industry in the last five years, more acute competition for energy resources, shortages in steel, engineering and manufacturing capacity, and pressures posed by an aging work force.

Also, gaining access to countries that hold oil reserves is becoming tougher as many oil-rich governments see fewer incentives to raise production as they reap the benefits of higher prices.

As a result, explorers are scouring ever-more remote corners of the globe in their hunt for hydrocarbons. That quest has found petroleum reserves off the shores of Africa and Brazil, and opened up promising exploration regions in the South China Sea, off the shore of India, and around the coast of Australia. But those sites will remain largely off limits until the new drill-ships arrive.

Most new orders for drill-ships have gone to Asian shipyards. Companies in Singapore and China have benefited, but South Korea’s big three shipbuilders — Samsung Heavy Industries, Daewoo Shipbuilding and Marine Engineering and Hyundai Heavy Industries — have gotten the bulk of orders for the most complex and expensive types of vessels.

“The market for offshore exploration is now the hottest sector in the global shipbuilding industry,” said Lee Jae-kyu, shipbuilding analyst at Mirae Asset Securities in Seoul.

At Samsung’s sprawling shipyard on the southern Korean island of Geoje, next to the gigantic hulls of half-finished supertankers, cranes and dry docks work overtime to construct odd-looking drill-ships like the West Polaris.

At 62,400 tons, the West Polaris, due for delivery this month, is larger than a World War II aircraft carrier. The pipes and steel scaffolding of its drill loom over the other ships lining the construction yard, like cars in an oversize parking lot.

The shipyard and its 25,000 workers bustle with activity, emitting a cacophony of clanging construction sounds, the roar of motors and short musical ditties that warn of moving cranes. These sounds echo in the emerald hills behind the yard, which stretches across one side of a deep blue bay.

“The oil reserves that were easy to reach are all drying up,” said Harris S. Lee, vice president in charge of Samsung’s offshore drilling rig business. “The future is in exploring the deep seas and harsh environments.”

A big challenge in deep-sea drilling is to stay over the same spot on the sea floor even as the vessel is buffeted by strong winds, currents and waves. Because water depths can reach up to 10,000 feet, far too deep for traditional rigs that are moored to the seafloor, ships like the West Polaris rely on high-speed computers that use global-positioning satellites to control an array of six swiveling propellers on the hull’s bottom.

The ship was ordered by Seadrill, a Bermuda-based offshore exploration company, for $453 million.

Last month, Samsung announced it had received a $942 million contract to build an even hardier type of drill-ship made specifically for Arctic conditions. The vessel, ordered by Stena Offshore, a Swedish company, will have a hull strong enough to break through ice, withstand 50-foot waves and insulate the men and machinery inside from outside temperatures as low as 40 degrees below zero. Samsung’s sales of all types of offshore drilling vessels jumped to $7.8 billion last year, up from $1.5 billion in 2005.

Despite the construction frenzy, constraints in the rig market could last several more years.

The last such boom in orders came in the late 1970s and early 1980s, when exploration rose after the 1970s oil shocks. In the 1990s, low oil prices and overflowing oil supplies led oil companies to cut back on exploration drastically.

“It will certainly mean more drilling activity and more discoveries in the deepwater side,” said Tom Kellock, the head of consulting and research at ODS-Petrodata.