Gulf of Mexico Oil Difficult to Access Daniel Yergin, chairman of Cambridge Energy Research Associates and author of The Prize: the Epic Quest for Oil, Money and Power, talks with Renee Montagne about news of Chevron's successful pursuit of oil production in the Gulf of Mexico. Yergin says tapping the new field would not have been possible a decade ago.

Gulf of Mexico Oil Difficult to Access

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To learn more about the discovery of oil in the Gulf of Mexico, we've called Daniel Yergin. He's chairman of Cambridge Energy Research Associates which analyzes energy markets for governments and companies and joins us on the line. Hello.

Mr. DANIEL YERGIN (Chairman, Cambridge Energy Research Associates): Good morning.

MONTAGNE: As we just heard in Jim Zarroli's report, it doesn't sound like this discovery will solve the U.S. dependence on foreign oil, but will it help with supply problems and oil prices?

Mr. YERGIN: Yes, it will, but not tomorrow and not even next week. If this all bears out, we'll start to see really significant impact in five or six years, which really drives home the long lead-times. Because, after all, the first discovery in that area was made about five years ago and it'll be another five years before we start to see it build up a significant production.

MONTAGNE: Oil companies have been exploring the deep waters of the Gulf of Mexico for some years. How hard was it to get to this more difficult area, much deeper, to extract the oil?

Mr. YERGIN: It has been a real challenge. I think that what's now occurring was not even really conceivable or thinkable, say, 10 years ago. But what you see is this constant application of technology and keep pushing the frontier - as they call it - farther out.

And, in particular, there were two developments, one in terms of seismic technology - being able to see at that depth underneath this sort of cap of salt. And secondly, of course, developing rigs that can drill in waters and conditions that are that deep.

MONTAGNE: And, of course, billions of dollars will be spent drilling, building platforms, laying pipelines. Will these companies make a good return on that investment?

Mr. YERGIN: Well, certainly, as you say, billions of dollars will be flowing in and I think that projects like this are not undertaken with the expectation that oil will be $70 or $65 a barrel. Probably people are looking to testing projects at around $35 a barrel. And I think they wouldn't undertake them if they didn't think that they would earn a return.

MONTAGNE: And tell us how this compares - the 15 billion barrels worth of oil and gas reserves expected to be there - how this compares to reserves in the Middle East?

Mr. YERGIN: Well, first it's still, you know, it's not early days, but it's early middle days. And so what are the actual proven reserves going to be? We've heard a very wide estimate from three billion to 15 billion. If it's the latter, of course it will be the biggest field ever discovered in North America, bigger than the North Slope.

So in North American terms, it's huge. But if you measure it against the huge fields in the Middle East and the Persian Gulf, it's rather modest.

MONTAGNE: Of course, Americans get a lot of their oil from politically unstable parts of the world. So even if it is modest, it's quite a lot of oil. How could this discovery affect U.S. relations with oil-rich countries?

Mr. YERGIN: Well, I think that our best bet as a country is to get our oil from a lot of different sources. And most of the oil we import actually comes from the Western Hemisphere, not the Middle East as some people think. Of course, some of that now comes from Venezuela, where relations are rather frosty to say the least.

But I think that what this would do is simply - anything that adds additional supply, adds new diversity, brings stability to the market in so as the importer is part of a single-world market, new supply anywhere and diversification anywhere is welcome, and including especially when it's right in our own waters.

MONTAGNE: Thank you very much for joining us.

Mr. YERGIN: Thank you.

MONTAGNE: Daniel Yergin is chairman of Cambridge Energy Research Associates. He's also author of The Prize: The Epic Quest for Oil, Money and Power.

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