Depleting oil reserves is an open secret that has started hurting oil companies' output levels. But the greater concern is this: If oil sources are drying up, is an acute energy shortage far behind? With this question in the background, the U.S. government's decision to auction Gulf of Mexico oil leases is of immense significance.
Why all the hullabaloo?
Global demand for energy has been on the rise against the backdrop of increasing population and income growth. An expected 1.4 billion increase in population along with a 100% rise in the world's real income over the next 20 years is likely to push up energy consumption by 39%. The share of oil and natural gas by 2030 is expected to be around 52%-54%, with the demand for oil increasing by 19% to 102 million barrels per day and the demand for natural gas increasing by 2.1% per annum.
Such a spike in demand needs to be accompanied by a rise in supply. But much to everyone's dismay, this has not been the case in the latest quarter of 2011. All the oil behemoths, with the exception of Shell
One way of doing this is to increase acreage. That more or less explains the large number of mergers and acquisitions taking place in the global oil and gas market. BHP Billiton
Can the sale bridge the gulf?
The Gulf of Mexico is a major oil and gas reserve for the United States. Its offshore oil and gas production accounts for 29% of total U.S. crude oil production and 12% of U.S. gas production. But BP's
The 12 offshore lease sales will comprise 3,913 unleased blocks with a potential to produce 423 million barrels of oil and 2.56 trillion cubic feet of natural gas. According to the U.S. Department of the Interior, the proposed area contains more than 75% of estimated supplies of recoverable oil and gas from offshore the United States. This presents a perfect opportunity to oil companies to either gain new acreage and start production from the Gulf of Mexico or increase their current acreage. In fact, Chevron
Foolish takeaway
The Gulf of Mexico lease sale could not have come at a more opportune time for global oil and gas players struggling with declining production. Though they will have to maintain stringent safety rules in deepwater drilling, the huge potential reserves make it lucrative enough to invest. We had better keep an eye on the companies moving for new acreages in the Gulf.
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