Spill could be 'game changer' for oil

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The Deepwater Horizon spill could become a global oil "game changer" by spurring a deep and potentially costly rethink of the rules needed to keep offshore drilling safe.

Regulatory changes alone could jeopardize nearly one million barrels of new daily crude production over the next half-decade, the International Energy Agency said in a dramatic new analysis published Thursday.

In the Gulf of Mexico, a one- to two-year delay in new deepwater oil projects could lower output by 100,000 to 300,000 barrels per day by 2015. In other deepwater jurisdictions, including Brazil, Angola and Nigeria, a further 550,000 daily barrels "could be at risk, albeit there are no current indications that permitting in these countries is likely to be affected," the agency reported.

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The numbers far exceed those published by the U.S. Energy Information Administration, which has said the current six-month deepwater drilling moratorium could reduce Gulf of Mexico crude production by a more modest 70,000 barrels next year.

But the International Energy Agency believes the spill, which continues to gush and has already created regulatory reviews in the U.K., Norway, Brazil, Canada and China, has the potential to be a "supply-side game changer."

"Emotion is understandably running high, and the way deepwater hydrocarbon developments are approved, operated and regulated will of course be thoroughly examined and potentially amended," the agency said in its June oil market report.

Read all about it in Jeff Rubin's Smaller World blog

The huge Gulf of Mexico crude spill has already raised serious questions about the ability of smaller companies to continue operating in the U.S. offshore, where some believe that tougher laws will raise the cost of business so high that only the largest companies can operate there.

The spill could begin to shift Americans away from oil, and is also expected to rearrange global investment patterns. The Gulf of Mexico had been one of the world's top regions for energy spending, but the current six-month moratorium on deepwater drilling, combined with uncertainty over future rules, could drive capital dollars to the oil sands and other areas of the world.

The Gulf spill will serve as a "catalyst" to push spending to places like Iraq and Kenya, which have been home to massive new finds, said Marin Katusa, chief investment strategist for Casey Research. But it may also have a far greater impact.

According to a new Deutsche Bank report, "this is the end of the oil age as we knew it and the Macondo [the blown well]will be seen as an enormous driver toward at least recognition that cheap, abundant, politically secure oil is no longer available and our behaviour must change to recognize that."

Fully 38 per cent of global petroleum production comes from offshore sources. And while just 1 per cent of that consists of deepwater petroleum from wells like the one currently leaking in the Gulf of Mexico, offshore petroleum has been the fastest-growing source of crude around the world.

That raises the implications of any growth-tempering rule changes - especially in deeper waters, where huge new finds have driven great interest. Earlier this year, U.K. energy research firm Douglas-Westwood estimated that deepwater offshore spending in the next half-decade would beat the previous five years by 37 per cent. Deepwater spending alone in the next five years was expected to reach $167-billion (U.S.) Despite the stakes, Gulf of Mexico offshore operators like Nexen Inc. are declining comment for now.

"We'll see what the new rules are like, post-moratorium. At this stage, I think people continue to make plans for when the moratorium is lifted," said Pierre Alvarez, Nexen's vice-president of corporate relations.

Some believe offshore problems could direct attention and spending to the oil sands, although the Canadian Association of Petroleum Producers says it's difficult to quickly squeeze more oil from northeast Alberta, where projects take years and billions of dollars to build.

And the spill's ultimate impact may be tempered by the fact that OPEC producers currently have six million barrels of spare production capacity - dwarfing even the IEA's forecast of a possible 850,000-barrel hit.

Still, a shift to OPEC production carries significant implications.

"The whole idea of trying to reduce imports and become more self-sufficient in energy, and especially oil in the U.S., is going to have a major setback and in fact go the other direction," said Gwyn Morgan, former chief executive officer of Encana Corp..

The dirtied public image of crude could ultimately boost ongoing efforts in Canada and the U.S. to use natural gas rather than oil to fuel vehicles and trucks, Mr. Morgan said.