High oil demand is here to stay, and the offshore industry continues to boom.

Some years ago, this publication’s editors predicted, to the disbelief of nearly everyone, that global oil prices would top $100 per barrel. That prediction became a reality during the first quarter of this year, and provides some insight into the state of the oil and gas industry today. Although the price of oil has increased significantly due to an ever-evolving global landscape, it is also being driven and sustained by growing world demand. This is in sharp contrast to the industry’s last price surge in the late 1970s and early 1980s. Around 1980, oil prices reached a high of $39.50 – which, adjusted for inflation, comes to roughly $103 in today’s dollars. The primary difference between then and now is the driving force behind the increase.

While the previous spike was driven by supply increases that presented a misleading demand scenario, today’s high prices are being driven by huge demand increases from developing economies. It’s no news that China and India have each developed an economically strong middle-class that demands heretofore unseen energy levels, but it is important to also note that forecasts show demand continuing upward for the next two or three decades. This new global landscape has left the oil and gas industry in an unenviable position. Many companies have recently experienced record profit levels while facing the daunting challenge of finding and developing oil resources as they continue to rely on an aging, understaffed workforce. Yet the world’s oil companies have consistently been able to apply new technologies, learning from experience to forge ahead to meet global energy demand. Nowhere is this ability to overcome challenges more evident than in the offshore oil and gas industry.

Last year saw the realization of production from some of the most complex and technologically challenging field developments the offshore industry has ever experienced. From StatoilHydro’s Ormen Lange field in the North Sea, to the Atwater Valley Producers’ Independence Hub in the deep waters of the Gulf of Mexico, the offshore oil and gas industry once again demonstrated its rarely mentioned yet always true dedication to technological achievement and excellence. Around the world, many field development projects saw their first production, and many more moved closer to reality as the industry continues to push for the sanctioning of projects that will contribute to the world’s thirst for energy. A tour around the world reveals some exciting achievements during 2007.

In the Norwegian sector of the North Sea, newly formed StatoilHydro saw production from its massive Ormen Lange field on September 13, 2007. (On December 1, 2007, Shell took over as operator of the field.) This large gas field is entirely comprised of subsea solutions, with no floating host or control facilities. After gas from the field is processed onshore, it is exported 1,200 kilometers to Britain’s east coast via Langeled, the world’s largest subsea pipeline. It is estimated that the Ormen Lange field contains upwards of 400 billion cubic meters of gas, and will supply gas to the region for close to 30 years. In order to ensure a steady supply, StatoilHydro had to overcome numerous complex field development challenges. The subsea terrain provided the largest hurdle, as Ormen Lange lies amid a daunting series of peaks and valleys, the most notable resembling a world-class ski jump. Once complete, Ormen Lange came in on schedule and under budget.

Another major development courtesy of StatoilHydro was in the icy waters of the Barents Sea, the first there. The Snohvit field, like Ormen Lange, is a large gas field with the potential to supply crucial volumes of gas to Europe, as well as to the United States. Gas is processed onshore in Hammergest, Norway at one of the world’s more advanced facilities, and then, in contrast to Ormen Lange, shipped to market via LNG carrier vessels. Snohvit’s first shipment arrived in the U.S. in late February onboard the Arctic Discoverer. Also noteworthy is Snohvit’s relationship to its environment. To avoid damage caused by local merchant vessels, the entire subsea development has been designed to withstand contact with approaching vessels while completely maintaining the integrity of subsea facilities. This is important, as it demonstrates the industry’s ability to produce oil and gas in an environmentally responsible manner.

While these two StatoilHydro projects may claim the highest name recognition in the area, a myriad of other fields operated by independent operators saw their initial production in 2007, increasing the energy supplied to both the region and the world.

Across the Atlantic, the U.S. Gulf of Mexico saw a number of new developments in 2007, as well as the progression of many promising future developments. Most notable was the July completion and start of the Independence Hub, operated by Enterprise Products Partners, in Mississippi Canyon 920. The Independence Hub set a number of records for offshore developments, especially for the world’s deepest field development, at almost 2,500 meters. Also of note is the collaboration seen: five operating exploration and production companies and one mid-stream company teamed up to develop the impressive field. The field partners estimate that the “I-Hub” could boost U.S. gas supplies by almost 10 percent. It hosts 15 different subsea developments, and exports the produced gas to shore via the 24-inch, 216-kilometer Independence Trail pipeline. The collaboration between the operators and their contractors was crucial in the successful completion of the development.

Another Gulf project was the production onset at BP’s highly anticipated Atlantis field. Along with BP’s other large-scale regional development (the Thunder Horse semi-submersible), Atlantis is an important milestone as BP seeks to have production from both assets online by year’s end. There was also the start-up of Petrobras’s Cottonwood field in Garden Banks 244. Cottonwood is Petrobras’s first production in the region, and the industry anxiously awaits its Cascade and Chinook development, which will see the U.S. Gulf’s first floating production, storage, and offloading (FPSO) vessel. The year also saw progress on future projects sure to boost U.S. production, such as Shell’s Perdido Regional Hub (the first development to be located in the promising Lower Tertiary trend in the Gulf’s ultra deep waters) and Chevron’s Jack and St. Malo developments. Perdido saw the awarding of its major installation contracts, and the Jack and St. Malo project team has been furiously working on pre-conceptual and conceptual aspects to determine its most suitable development. The Gulf of Mexico has a wealth of other potentially great prospects still in the exploration phase, and groundwork was laid in 2007 for the Gulf to become an industry hot-spot. Forecasts indicate it will be a primary activity center over the next decade.

Near Great Plutonio is TOTAL’s Block 17 development, Pazflor. Once complete, Pazflor will be a proving ground for the increasingly important use of subsea boosting, since it will be this technology’s first use as a “field-enabling” mechanism. In 2007, Pazflor saw the award of several key subsea development contracts, moving closer to fruition and providing additional much-needed resources. Not to be overlooked is TOTAL’s other Block 17 development, the Rosa subsea field. It is tied back to the Girrasol FPSO, itself full of firsts when it came online, and it started production on June 18. Rosa consists of proven reserves estimated at 370 million barrels, which TOTAL believes will keep the Girrasol FPSO running at full capacity well into the next decade. While offshore West Africa’s current state of development is positive, there are some additional major field developments to come, such as BP’s Block 31, Kosmos Energy’s Jubilee, and the Angola LNG project. The waters off West Africa will continue their major contribution to global energy supply for decades to come.

Then there is Southeast Asia’s newly thriving offshore industry. The favorable economics associated with natural resource development there have transformed the region into a budding metropolis. The ability to find and develop offshore oil and gas reserves has been a primary catalyst for the region’s growth as the industry has responded to Asia Pacific developments. The area is still new in terms of major project developments; however, many large-scale projects are on the horizon, such as Chevron’s Greater Gorgon and Jans gas development.

Nevertheless, the Asia Pacific region had its share of significant start-ups in 2007. Murphy Oil’s Kikeh field realized its first production on August 17 from a spar unit accommodating production from both dry and wet trees. The project represents the successful installation of a full field development that cost almost $2 billion, clearly indicating the region’s stance as the industry’s premier frontier. It is significant that a relationship was established between Murphy as the field operator and Malaysia’s national oil company Petronas as a working interest owner. As seen in other regions, the ability of the major and independent operators to partner with national oil companies provides tremendous opportunity to collaborate and share knowledge, both critical to successfully exploit resources. With Kikeh’s completion and the promise held by ongoing developments, the Southeast Asia region is positioned to continue its growth – a trend that will ensure an increase in global energy demand.

Of course, any South American offshore discussion must include two potentially massive discoveries offshore Brazil. Late last year, Petrobras confirmed it had discovered oil accumulations on the Tupi field that may be in excess of 8 billion to 10 billion barrels of recoverable reserves. More recently, Petrobras announced an aggressive development plan, with an early production system possible within two or three years. And the nearby Jupiter field was announced early in 2008, with early estimates that the field could contain gas reserves on the scale of Tupi’s. While these estimates have yet to be substantiated, it is clear that Brazil’s offshore industry, which already contributes significant volumes to global energy reserves, will continue its contributions.

Last year saw the continued commitment of the offshore oil and gas industry to boost global supplies, with the completion and start-up of many projects of varying scale. While this global production increase is much needed, one of the most positive signs in 2007 was the hint of the industry’s future. Large discoveries offshore Brazil, the continued progress in every region’s major projects, and the ongoing push for Arctic exploration and production activity point to the industry’s potential for growth over the next 20 to 30 years. That growth will be critical to the ongoing efforts of the oil and gas industry to meet the world’s energy needs.