Slow improvement ahead for drillers, report claims
DNV GL’s 2018 Oil and Gas Industry Outlook research has re-affirmed the general view that confidence is rising across the sector.
OSLO, Norway – DNV GL’s 2018 Oil and Gas Industry Outlook research has re-affirmed the general view that confidence is rising across the sector.
However, caution remains over the pace of new developments, with various projects still awaiting a final investment decision (FID).
On a more positive note, break-even costs for deepwater developments fell from around $75/bbl to $45/bbl in 4Q 2017, the report found, and if oil remains in the $60-70/bbl range, more new deepwater projects could follow next year.
Refinement of development solutions continues – as an example, Shell recently announced that it could now develop its deepwater Brazilian fields at a break-even cost of $30/bbl.
Turning to rigs, DNV GL assessed take-up of the combined global jackup and floater drilling rig fleet at 68% at the start of April, with the number of active rigs at 464, the highest since October 2016, when 472 units were operating.
Of the active rigs, 321 were jackups and 143 were floaters (drillships and semisubmersibles).
Day rates for jackups have more than halved since the peak of 2014, with around 90 jackups since retired. At the same time, a substantial number of new units have been added, which has not helped day rates.
However, the need for jackups will remain relatively high due to the new field developments, and there will likely to be increasing demand for in-field drilling and well maintenance to maintain current production rates.
But greater improvement in rates will only follow when more units are needed in operation, and when more have been scrapped. Realistically, jackup take-up needs to reach 85%, before significant increases in day rates emerge, the report claims.
As for harsh environment, floating drilling rigs, day rates remain significantly lower than in 2014, with most contractors struggling to maintain profitable operations.
Various older floaters have been scrapped, but not enough to restore a healthier market. At the same time there has been only one newbuild order in the last four years, and DNV GL expects few new orders to materialize before 2020, except for niche segments or services.
The same applies to ultra-deepwater drillships: scrapping of older units and likely no new orders.
Demand for ultra-deepwater drillships could rise slightly increase in the next two to four years, to attend to the planned deepwater field developments. Twenty-one new drilling units are set to be delivered this year, more than in 2017, with a further 47 units should follow in 2019.
On average, the Middle East and North Africa region has the lowest development costs and will see steady or increasing annual additions to offshore oil production capacity until the 2040s.
Sub-Saharan Africa will exceed these, but only until the mid-2020s. Every other region will see investment in new capacity of this kind declining from now, and at a rapid pace until 2030.
Offshore gas production volumes will increase by approximately 26% during 2017-2031, according to the report. Growth comes principally from two regions: Middle East and North Africa, and Southeast Asia. Production will decline slowly thereafter.
DNV GL’s 2018 Energy Transition Outlook predicts that global upstream gas capex will rise from $960 billion in 2015, to a peak of $1.13 trillion in 2025, with upstream gas opex increasing from $448 billion in 2015 to $582 billion in 2035.
The company’s model predicts global oil demand will peak in 2023, but demand for gas will continue to rise until 2034, and replacement resources will be required long after these dates to continue to satisfy demand.
Conventional onshore and offshore gas production is forecast to decline from about 2030, while unconventional onshore gas is expected to rise to a peak in 2040. This should lead to leaner, more agile gas developments with shorter lifespans.
Replacement of oil reserves will continue to require the development of new resources long after peak demand is reached, probably from smaller reservoirs than those in operation today. This means the industry will be challenged to continue to innovate and develop new solutions.
At the same time, DNV GL sees seismic and drilling activities increasing as the oil and gas market works harder to find the hydrocarbons the world needs.
Growing oil demand will likely be strongest from emerging economies, with the largest growth markets being China, India, and Southeast Asia.