Surging demand forecast for offshore energy
Gene Kliewer • Technology Editor, Subsea & Seismic
The offshore oilfield services sector faces unprecedented levels of business; some companies that might normally have a six-month backlog are now booking work for 2011, according to John Westwood of Douglas-Westwood Ltd. Recent $100 oil adds to the demand for the products and services from offshore oil and gas supply companies. Suppliers are virtually beating off the customers, but demand continues to grow, Westwood says.
Deepwater
Virtually the only place giant fields will be found in the future is in deepwater, with Brazil’s recent Tupi elephant find testament to that, Westwood told a forum at the Society of Underwater Technology in Houston. Westwood expects world deepwater production to grow from 6 million barrels of oil equivalent per day in 2007 to 11 MMboe/d in 2011.
Douglas-Westwood’s “The World Deepwater Report” projects that nearly $25 billion will be spent annually in deepwater capital expenditure by 2012. This represents a 30% growth for the 2008-2012 period in comparison to the previous five years. This spending will drive demand for deepwater drilling rigs, floating production systems, subsea production hardware and more, the report says.
“This drive to produce what is very high cost oil from deepwater is the oil companies’ response to declining production in offshore continental shelf areas such as the North Sea and Gulf of Mexico, and the increasingly onerous terms being sought by the biggest holders of on-shore oil reserves; the National Oil Companies (NOCs),” Westwood said.
“In the early 1970s, some 80% of world oil reserves were controlled by the international oil companies (IOCs), but now the position has completely reversed with the national oil companies (NOCs) holding the remaining 80%.”
On top of all this, even in shallow waters, the oil companies now face higher costs, Westwood said. For example, per-barrel lifting costs in the UK sector of the North Sea in 2005 was $15, but by 2007 it had increased by 67% to $25.
There are hundreds of small undeveloped offshore fields worldwide but “big oil” needs big fields, he said. The remaining “easy oil” and indeed gas is in hard places and is being strongly competed for by countries such as China, India, and Russia. A recent example is Gazprom’s move to gain access to Nigerian gas reserves.
Another ‘hard place’ is Arctic waters, Westwood said, where the prospects of massive reserves (estimates range from 160-300 Bboe) have resulted in a great subsea land claim being played out by Russia, Canada, and the US, against a spring 2009 deadline imposed by the United Nations Convention on Law of the Sea (UNCLOS).
But even high oil prices bring problems. In the case of the integrated majors, the high oil prices that generate massive profits for their upstream operations are hurting their downstream refining margins, he said.
“Times are due to get even more interesting – for some years,” Westwood said. Douglas-Westwood has been publishing forecasts suggesting that oil production could peak within the next few years – a view recently supported by the International Energy Agency.
“In my view, big oil now needs a new business model and nothing demonstrates that more than oil company stock buybacks – this is paramount to saying investors can find a better return for the money than oil companies can,” he said. “So the key question that remains is where can big oil profitably re-invest?”
Oilfield services companies have become an investor favorite. Douglas-Westwood’s index of 10 leading deepwater OFS companies has since November 2006 risen by 69%, whilst in comparison the FT oil and gas companies’ index has grown by 11%. Individual deepwater sector stars include drilling rig operator Transocean, up 105% and subsea flexible pipe manufacturer Wellstream, up 207%.