Infrastructure-Led Exploration Reducing Offshore Pipeline Demand

HOUSTON (P&GJ) — Shell's announced plan to develop the PowerNap deepwater project in the U.S. Gulf of Mexico reflects a broader trend toward "infrastructure-led exploration" that weakens demand for the construction of new subsea export pipelines.

Recent exploration shows majors have adopted a complementary strategy of pursuing both traditional large prospects and infrastructure-led exploration.  The overall trend, however, is toward longer subsea tie-backs to existing infrastructure, according to Michael Murphy, Gulf of Mexico research analyst for Wood Mackenzie.

Shell’s final investment decision for PowerNap reflects a "trend of majors embracing subsea tie-backs that offer quicker paths to first oil and attractive returns," Murphy said.

Further illustrating the deepwater Gulf of Mexico trend, Shell brought the Kaikias subsea tie-back online in 2018, and BP's Nearly Headless Nick tie-back is expected to come online by the end of 2019, just a year after its discovery.

“With internal rate of returns above 30% and development breakeven in the low-to-mid US$30’s, the sanctioning of subsea tie-backs is proving that deepwater can compete with tight oil,” Murphy said.

WoodMac estimates development breakeven for Shell's PowerNap and Kaikias programs to be in the "low US$30’s per barrel.”


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