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Alex Kimani

Alex Kimani

Alex Kimani is a veteran finance writer, investor, engineer and researcher for Safehaven.com. 

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U.S. Offshore Oil Boom Is No Cure For Global Supply Crunch

  • U.S. offshore oil production is booming as operators are bringing new platforms online.
  • Years of underinvestment in drilling activity have taken their toll on the offshore industry.
  • Goldman Sachs expects offshore E&P capex to triple from recent lows.

With news that Germany is no longer a hold out on EU-wide Russian oil import restrictions, the oil market supply crunch is looking to get even worse if the EU decides on a full ban. While Hungary remains a potential holdout, sources cited by the Wall Street Journal indicate the 27-member bloc is discussing ways to help the country manage oil supplies without flows from Russia. The EU sends $450 million a day to Russia for oil and $400 million per day for natural gas, with Europe importing 138 million tons of Russia’s oil last year, good for 53% of its total oil exports. Meanwhile, OPEC’s production woes never seem to end. OPEC production for March climbed by a mere 40kb/d, badly missing the group's production growth target of 254kb/d. According to a Reuters survey, the miss was largely attributable to declining production in Libya and Nigeria, with serial declines in Nigeria a persistent headwind.

A week ago, Goldman Sachs expressed optimism that the industry has reached a turning point in the oil and gas capex cycle, with seven years of declining activity about to come to an end. Goldman reckons that oil and gas capex could triple from recent lows.

The good news: a production ramp is already underway in the offshore drilling sector.

According to Bloomberg, a new wave of oil platforms is sweeping across the U.S. Gulf of Mexico as oil companies rush to capitalize on oil prices at multi-year highs.

The bad news: A ramp-up in U.S. offshore output is not likely to close the global oil supply gap thanks to years of underinvestment.

Offshore Rebound

Bloomberg has reported that BP Inc.’s(NYSE:BP) and Shell’s (NYSE:SHEL) floating production platforms are slated to start pumping crude off the Louisiana shore later this year. They will join Murphy Oil’s (NYSE:MUR) another Louissiana behemoth--King Quay, that started producing oil in April. Other platforms by Chevron Inc. (NYSE:CVX), Shell and Beacon Offshore Energy are expected to start production in two years. 

Related: The Calm Before The Storm In Oil Markets

Once complete, the six platforms will be capable of pumping up to 560,000 barrels of crude per day.

The Gulf of Mexico has been a U.S. crude hub, with its deep trove of reservoirs responsible for about 14% of the U.S.’s crude production. In January, Gulf production clocked in at 1.7 million barrels of oil per day, shy of the pre-pandemic record of 2 million barrels a day.U.S. oil production is currently clocking in at 11.8 million barrels a day, a distance away from the pre-pandemic record of 13.1 million barrels a day.

Unfortunately, the global picture is not pretty, with analysts predicting that it will take many years for the global industry to fully recover--if ever.

The number of new offshore discoveries worldwide has fallen to a 75-year low after oil companies slashed their budgets for deepwater exploration. The oil market crash of 2020 was brutal on major oil producers, forcing global oil and gas companies to cut capex by $100B, or roughly 30%, to 13-year lows. However, it’s offshore drillers who bore the full brunt of the cuts, with just a fifth of projects earmarked as potentially going ahead in 2021 proceeding on schedule

Some of the high-profile offshore drilling deferrals included the suspension of ExxonMobil’s (NYSE:XOM) multi-billion-dollar Rovuma LNG project in Mozambique; deferral of BP Plc-Kosmos Energy (NYSE:KOS) multi-billion-dollar Greater Tortue Ahmeyim gas-condensate project off Senegal and Mauritania, suspension of Equinor (NYSE: EQNR)-Husky Energy (TSE: HSE) Bay du Nord project offshore in eastern Canada and Australia’s Woodside Petroleum (ASX: WPL) pushing back the Final Investment Decision (FID) for the Scarborough gas project.

Related: Upstream Oil Industry To See Highest Profits Ever In 2022

But even as the industry recovers from the pandemic, offshore investment globally is set to rise only 7% to $155 billion this year, compared with an 18% increase in shale investments, according to Rystad Energy, a consulting firm. The big problem here is that offshore projects cost billions and rarely come online in less than a decade.Worries that today’s high crude prices won’t last, coupled with the fact that offshore drilling is expensive and time-consuming, makes offshore projects a tough sell.

Regulatory overhang does not make things any easier.

It remains unclear when--or if--offshore producers will be able to secure new Gulf leases from the Biden administration when the current five-year program expires on June 30. According to the National Ocean Industries Association, Gulf production could be halved by 2040 if leases remain suspended.

Gulf producers are, however, changing tack to cope with the new realities.


First off, producers are increasingly shifting to smaller designs and subsea tiebacks, instead of launching megaprojects to explore in ever deeper waters farther from shore. 

According to  Colin White, an offshore analyst with Rystad, operators are shifting to an infrastructure-led exploration strategy because the Gulf of Mexico already has so much infrastructure in place. 

Further, many offshore giants are increasingly looking beyond the Gulf of Mexico: Exxon Mobil and Hess Corp. (NYSE:HES) have made significant discoveries in Guyana while TotalEnergies (NYSE:TOT) and APA Corp. (NYSE:APA) are ramping up development in neighboring Suriname. Meanwhile, Shell has made a massive discovery in the Atlantic in offshore Namibia.

By Alex Kimani for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on May 04 2022 said:
    All this rigmarole is just to tell us what we already know, namely that US oil production is no cure for a global supply crunch.

    The claim that US oil production is currently 11.8 million barrels a day (mbd) is highly questionable. This is because there is a difference of 0.6 -1.0 mbd between the EIA’s monthly and weekly reports. Therefore, a more realistic estimate ranges from 10.8-11.0 mbd. Therefore, this talk about a US offshore oil boom is a pipe dream. The US is currently importing 9.0-9.2 mbd and this could only increase in the future.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

Leave a comment

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