The East Sea Oil and Gas Field Resembling the Guyana Block Sold for a Bargain Price of '1 Dollar' [Korea, Dreaming of Becoming an Oil-Producing Country]

Development and Drilling Costs May Also Require Hundreds of Trillions

The cost of the East Sea oil and gas field project is likely to exceed at least 100 trillion won. This figure takes into account the development costs of the Stabroek oil field project in Guyana, which is considered a similar oil development project.

The sea in front of Yeongilman, Pohang [Image source=Yonhap News]

Tens of FPSOs worth 2 trillion won needed... Development costs expected to reach hundreds of trillions

The East Sea oil and gas field project resembles the Stabroek oil field project, which is regarded as the largest oil development project of the 21st century. The East Sea oil and gas field requires drilling into deep seabed layers over 1,000 meters deep, located 38 to 100 km from Yeongil Bay in Pohang. Similarly, the Guyana Stabroek oil field extracts oil and gas by drilling 1,000 to 6,000 meters deep in ultra-deepwater areas with depths exceeding 1.5 km. Oil-producing layers are generally found between 1 km and 4 km depth, while gas layers are usually deeper than 6 km. Considering all ancillary costs, offshore drilling is known to cost more than four times as much as onshore drilling.

What infrastructure is actually required for deepwater oil field development? Floating Production Storage and Offloading (FPSO) units and Floating Liquefied Natural Gas (FLNG) facilities are primarily needed. FPSOs and FLNGs serve to store and transport the extracted oil and gas. Floating drilling equipment, called drilling centers or platforms, insert drilling pipelines deep into the seabed to extract oil and gas from layers thousands of meters below. Additionally, water and gas injection facilities are required to refill the emptied reservoir spaces with water and gas to enhance recovery rates, along with numerous other facilities such as gas transportation pipelines that send extracted natural gas back to land. The Stabroek oil field currently has 35 large wells discovered, with development costs around 10 trillion won per well project.

The Guyana oil project involves ExxonMobil, Hess, and China National Offshore Oil Corporation (CNOOC). They have invested $54.8 billion (approximately 75.35 trillion won) in six confirmed projects. Since 35 wells have been discovered and development has begun, if an additional 10 to 20 or more projects are launched, the investment amount is expected to reach hundreds of trillions of won.

The turnaround of a '1 dollar' bargain lease block

With current drilling technology, the East Sea oil and gas field, a deepwater reservoir, is also worth attempting commercial production after assessing economic feasibility. Although it is difficult to simply compare the estimated 'Reserves' from actual drilling with the 'Prospective Resources' observed through seismic surveys, the reserves of the Guyana oil field are about 11 billion barrels, and the prospective resources of the East Sea oil and gas field are up to 14 billion barrels, showing similar scales.

It is also a parallel that the lease block, which had not been discovered for decades despite exploration, was found by ExxonMobil or former ExxonMobil personnel, or that the resource potential increased. The Stabroek lease block was explored over 40 times by global companies such as Shell between 1975 and 2014 but failed to find oil.

In 2014, after more than 10 years of unsuccessful exploration, Shell sold the exploration rights in this area to ExxonMobil for just 1 dollar. ExxonMobil then sought development partners for the lease block, but only two companies showed interest, and it was largely ignored in the international oil market. ExxonMobil announced the discovery of the 'Liza well' within Stabroek. Currently, the Stabroek lease block contains 11 billion barrels of oil, more than the combined reserves of Norway and the UK, with ExxonMobil leading the extraction. Its value far exceeds 1,000 trillion won. Dr. Vitor Abreu, owner of the oil exploration company Actgeo, which participated in the physical survey data analysis of the East Sea oil and gas field, is known to have played a leading role in the Guyana lease block exploration while working at ExxonMobil.

Concerns about the safety of the East Sea oil and gas field arise due to natural disasters such as typhoons in summer and autumn. The Guyana oil field also faces hurricane-related challenges during its operations. It is necessary to observe how Guyana, which has already entered commercial production, handles environmental and safety issues such as oil spills caused by natural disasters.