Chevron’s deepwater breakthrough could drive oil production surge

Good morning and welcome back to Energy Source, coming to you from New York.

The electricity industry is enjoying boom times as the construction of power hungry artificial intelligence data centres lifts energy demand in the US and elsewhere. But many of the companies fuelling the first significant rise in power demand in two decades in the US — Amazon, Meta and Google — have strict net zero targets on greenhouse gas emissions designed to showcase their green credentials.

So how do they square this circle given that fossil fuels accounted for about 60 per cent of electricity generated in the US last year? The answer is carbon accounting, according to an FT investigation that sheds light on efforts by Big Tech to shape the rules that govern how pollution from power use is disclosed.

Our main item today focuses on a major innovation in production technology that will enable operators to pump oil from deepwater basins up to six miles below sea level at ultra-high pressure.

And just a note to say my colleague Amanda Chu is taking a well earned holiday over the next two weeks. We will not publish our Thursday Energy Source on August 22 and August 29. However, we will continue to publish on Tuesdays as usual.

Thanks for reading, and do get in touch at jamie.smyth@ft.com.

Chevron’s deepwater technology breakthrough

This week Chevron announced a technology breakthrough that could extend the production lifespan of the US Gulf of Mexico oil basin — and potentially bring billions of additional barrels of oil and gas within reach of producers globally.

The US oil major has begun pumping oil and gas at its $5.7bn Anchor deepwater project in the Gulf of Mexico using specialised equipment that can operate at ultra-high pressures, about a third higher than previously deployed in the industry.

It is the first of a new wave of projects under development using so-called 20K technology, which is capable of operating in deep water at 20,000 pounds of pressure per square inch, equivalent to the pressure exerted by 650 medium-sized bulldozers.

Anchor’s floating production unit is recovering oil from a reservoir six miles below the water surface, where temperatures are typically about 121C. Chevron contracted Transocean to drill the production wells and several oilfield service providers including Drill-Quip for the subsea wellhead system and NOV for pressure control equipment.

“The ability to do this and prove this [works] and have it qualified all the way through regulatory approvals is significant. We’ve demonstrated that it can be done,” Bruce Niemeyer, Chevron’s president of Americas exploration, told Energy Source.

The complex geology of the deepwater US Gulf of Mexico has long made it an important test bed for offshore technologies, which are later deployed at other deepwater locations around the world.

Niemeyer said Chevron would initially focus on deploying the latest ultra-high pressure technologies in the Gulf of Mexico before looking at other global opportunities.

“We have over 390 leases in the Gulf of Mexico and inside of that are some prospects that would have this same sort of requirement. We have to go through the assessment and exploratory phase of some of that before we would sanction a project in the future. But it now opens [the possibility of] those, where in the past, it wasn’t possible.”

Chevron expects its Gulf of Mexico production to increase 50 per cent to 300,000 net barrels of oil equivalent per day by 2026, which is roughly 10 per cent of its global production.

Analysts say deployment of the new 20K technology by other operators could reinvigorate production in the Gulf of Mexico, which accounts for about 15 per cent of US crude production. Production from the basin has flatlined since reaching a peak of 2mn barrels of oil equivalent per day in 2019.

Wood Mackenzie forecasts that 20K technology will unlock more than 2bn barrels of oil equivalent in the Gulf of Mexico that was previously unrecoverable.

“This really opens the door for more of these deepwater high-pressure discoveries to be brought on stream,” said Mfon Usoro, analyst at Wood Mackenzie.

Three other Gulf of Mexico projects under development are expected to deploy similar 20K deepwater technology in the coming years — BP’s Kaskida, Shell’s Sparta and Beacon Energy’s Shenandoah. Wood Mackenzie forecasts the contribution from ultra-high pressure projects already under development will cause production to rise to 2.7mn barrels of oil equivalent per day by 2027.

Usoro said if these projects were all brought online successfully it would boost Gulf of Mexico production and provide opportunities in other deepwater locations such as Brazil, Nigeria and Namibia. A failure of the 20K technology would have a negative impact.

“Success in the play could extend the life of the basin,” said Usoro. “However, if results fall short, it could mark the beginning of production decline in the basin and a blow to a resurgence in exploration for additional barrels.”

The biggest risk in implementing deepwater technologies is safety, a point underlined by a well blowout at the Deepwater Horizon drilling rig in the Gulf of Mexico in 2010 that was operated by BP. The disaster killed 11 workers and caused immense environmental damage that has cost the company more than $65bn so far.

Niemeyer said Chevron’s 20K technology was “safe to deploy” and had gone through rigorous testing.

“This equipment was designed. It was tested and it was qualified and ultimately signed off by the regulator. And so we’ve got high confidence in it because of the very disciplined process that we’ve gone through.” (Jamie Smyth)

Power Points

Energy Source is written and edited by Jamie Smyth, Myles McCormick, Amanda Chu, Tom Wilson and Malcolm Moore, with support from the FT’s global team of reporters. Reach us at energy.source@ft.com and follow us on X at @FTEnergy. Catch up on past editions of the newsletter here.