Gulf of Mexico deepwater drilling to play important role as market, oil prices balance, BP economist says _lowres

Mark Finley, BP

Although slumping oil prices pushed the U.S. rig count to a record low last week, a leading BP economist hasn’t written off the future of deepwater drilling in the Gulf of Mexico.

“Over the medium and longer term and as the market rebalances, we believe that investment will begin to flow back into the Gulf of Mexico and other high-cost sources of supply,” Mark Finley, BP’s chief U.S. economist, said Monday. “The world is going to need deepwater production” in the coming decades to meet expected global oil demand.

Industry leaders need to stay focused on reducing costs and making drilling techniques more efficient, he said, because “the investment will flow to where the attractive business proposition is.”

Finley is scheduled to speak Tuesday at the LSU Center for Energy Studies, where he will discuss BP’s Energy Outlook. It’s the oil giant’s annual report that assesses the “most likely” path for global energy demand over the next two decades, based on the company’s assumptions about policy, technology and the economy.

The report, published last month, predicts that global energy demand will rise 34 percent by 2035 — an average rate of 1.4 percent a year. Perhaps not surprisingly, BP’s report forecasts that fossil fuels remain the dominant energy source — good for 60 percent of the projected increase in demand and nearly 80 percent of the world’s total energy supplies in 2035.

Thanks largely to U.S. shale production, natural gas is projected to be the fastest-growing fossil fuel, climbing 1.8 percent annually, while oil production is slated to rise just less than 1 percent, BP’s report said.

While the International Energy Agency — the Paris-based agency for oil-consuming nations — said last week that signs had emerged that oil’s latest boom-or-bust cycle had “bottomed out,” Finley predicts global supply and demand will “come back into balance” by later this year, a trajectory driven by low prices helping increase demand and sap supply.

Federal forecasters pegged last month’s production down about 80,000 barrels per day from the previous month, while oil prices fell to about $26 per barrel from well above $100 per barrel two years ago. The U.S. Energy Information Administration predicts per-barrel prices to average $34 in 2016 and $40 in 2017.

Meanwhile, BP’s forecasters are watching for signs in the pace of China’s economic growth — and energy demand — as well as movement to global oil inventories.

“If the world’s economy hangs in there, we think that global supply and demand are likely to come back into balance by the second-half of this year,” he said.

“But that means in between now and then, inventories keep growing, so it doesn’t mean that because supply and demand come back into balance, we’re out of the woods.”

Follow Richard Thompson on Twitter, @rthompsonMSY.