Shifting the Oil Supply Curve to the Right in the Gulf of Mexico

Lynne Kiesling

High prices and profits in the oil industry are inducing further exploration. This exploration is paying off in the Gulf of Mexico (WSJ, subscription required), where the largest new discoveries since the north slope of Alaska are likely.

At a time when energy companies are struggling to replace reserves, the Gulf’s deep-water lower-tertiary region “is one of the few exploration success stories where potentially world-class finds have been made in recent years,” says Wood Mackenzie oil analyst Zoë Sutherland.

Many of the finds in the region are still unexplored. There are four discoveries near Jack. Two hundred miles to the west, there are five discoveries clustered together, including Royal Dutch Shell’s Great White field, which Wood Mackenzie estimates holds the equivalent of 500 million barrels’ worth of oil and natural gas.

The area in between has recently yielded its first strike — and potentially the largest yet. On Thursday, BP said its exploratory Kaskida well had passed through 800 feet of oil-bearing rock, the second-thickest oil zone ever found in the Gulf of Mexico.

Last year, a team of Chevron geologists estimated that between three billion and 15 billion barrels of oil could be extracted from the Gulf of Mexico’s lower-tertiary rocks. “I suspect today that is on the low side,” says Larry Nichols, Devon’s chairman and chief executive. Chevron, which is based in San Ramon, Calif., agrees that the three-billion-barrel end of the range is probably low.

These supply increases will, eventually, moderate prices.

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2 thoughts on “Shifting the Oil Supply Curve to the Right in the Gulf of Mexico

  1. These supply increases will, eventually, moderate prices.

    Presumably that’s ceteris paribus. Seems to me that anticipation of future price decreases might cause people to postpone changing their behavior or otherwise cause them to behave differently than they otherwise might behave.

  2. I have seen no estimates of the cost of bring the new discoveries on line. Presumably it is much less then the current market price?

    In the early 1970s we knew North Sea and North Slope were the marginal source of oil so we could reasonably assume that market prices would have to rise to a level that make developing these sources profitable. Is that the case with these new discoveries?

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