How the Gulf of Mexico Can Further the Energy Transition
Long recognized as a pillar of US energy production, deepwater Gulf of Mexico could help provide the resources the world needs during the energy transition.
As governments, industries, and consumers around the world consider how to achieve a low-carbon future, restricting supplies of fossil fuels may seem like an answer. But society needs affordable energy sources until the net-zero goal is met. In most pathways toward net-zero emissions, global demand for crude oil will require continued investments to ensure energy access and security for citizens across the world. That’s where large deepwater basins, particularly the Gulf of Mexico, come in.
Making the energy transition means focusing on the energy supply; and success hinges on where that energy comes from. Optimizing the supply mix to include responsibly sourced oil is important to meet the global oil demand while minimizing emissions during the energy transition. This article discusses the emissions intensity for major oil and gas supplies around the world, the advantages of deepwater basins, and the ways in which the Gulf of Mexico can help satisfy energy demand while lowering emissions.
The Gaps That Oil Producers Will Have To Fill
To understand the outlook for global oil liquids demand and sources of supply, McKinsey Energy Insights’ Global Energy Perspective 2022 models global energy trends under several energy transition scenarios.
Taking into consideration the future pace of government policy and regulatory changes, as well as the level of adoption of key technologies such as electric vehicles and renewable energy, the analysis leads to a range of possible outcomes for the oil markets, with a peak in demand occurring between 2024 and 2035. The common element across these scenarios is that additional sources of supply will be needed to meet demand and offset the natural decline of current online production.
These supplies are expected to come from the lowest-cost projects, which involve a variety of asset types—including shale, shallow water, deep water, and heavy oil—and from different regions around the world, such as offshore Brazil, offshore West Africa, the Gulf of Mexico, and Middle Eastern countries. The future contribution of each is largely uncertain because of output decisions by OPEC, the asset performance of new investments, and many other factors.
The common element across these scenarios is that additional sources of supply will be needed to meet demand and offset the natural decline of current online production.
The Gulf of Mexico’s Emissions Advantage
According to McKinsey's Global Energy Perspective’s Current Trajectory scenario, deepwater basins are expected to provide 7 million B/D out of 24 million B/D of new supply sources needed by 2040. The Gulf of Mexico could supply between 1 million and 2 million B/D, with important implications for the US economy and global emissions.
One of the world’s most prolific oil-producing regions, the Gulf of Mexico produces 1.7 million B/D—15% of US crude oil production. Moreover, this basin is a significant source of government revenue and employment, garnering more than $22 billion through royalties and lease-sale proceeds over the past 5 years and supporting more than 175,000 jobs. It also stands out as one of the lowest-emitting oil sources on a per-barrel basis.
The lower-carbon potential of the Gulf of Mexico is determined by the Scope 1 and 2 emissions that are associated with the direct and indirect greenhouse gases released from development and production operations. In the oil and gas value chain, these steps are where the source of supply matters most. Conversely, associated emissions from midstream and downstream steps—refining and product transportation, for example—are largely independent of the oil source. The Gulf releases less than half of the emissions per barrel compared with other major basins. That potential matters to the many oil and gas companies that are investing in the Gulf of Mexico, especially to those that have announced net-zero emissions targets. And it matters for the world climate.