2011 and beyond

Eldon Ball • Houston

It’s December and that can only mean that Santa Clause has again left us a generous supply of industry forecasts in our Christmas stocking – lots of new predictions to mull over while waiting in the check-out lines.

So without further delay, let’s unwrap this year’s holiday surprises.

Wood Mackenzie says that capital spending on upstream activities such as drilling and production will increase substantially in many global regions over the next three years, but maybe not so much in the Gulf of Mexico.

According to a recent report, Wood Mackenzie estimates that upstream capital spending will total more than $380 billion in 2010, about $19 billion higher than last year but still almost 10% below the historical peak of 2008. More upstream spending is ahead, they say, predicting that upstream spending in the US will climb to around $95 billion in 2013 from a low point of $63 billion in 2009. Even more spectacular growth is expected in Australia (up 190%) and Iraq (up 1,700%), they say.

However, future investment levels in the deepwater Gulf of Mexico will be greatly influenced by policy changes over the coming months, the report states. Higher costs will likely result from the imposition of stricter regulations and a number of marginal fields may become sub-economic, the analysts note.

Some US Gulf of Mexico development plans are likely to be abandoned or delayed, the analysts say, resulting in a less aggressive investment schedule than was previously forecast.

Elsewhere, they see spending as increasing significantly in many parts of the globe.

“It is clear from our understanding of operators’ plans in the autumn of 2010, that confidence has returned to many regions and sectors of the industry, although this effect is far from consistent across the world,” says Iain Brown, Wood Mackenzie’s Regional Upstream research manager.

Wood Mackenzie’s forecast in included in its latest research report, “On the Rebound – Global Upstream Spending Returns to Growth.”

“Even mature provinces such as the UK are anticipating a resurgence in investment,” the report states, “potentially to higher levels than before the economic crisis.”

“More than half of future upstream investment will be provided by the multi-national majors and a range of prominent national oil companies (NOCs),” they report. “PetroChina has by far the largest upstream commitment amongst the NOCs, and its spending plans rank with the largest of the international majors.”

If recent momentum is maintained, Wood Mackenzie says, capital expenditure should recover to pre-crisis levels by 2012. In such circumstances, upstream spending looks set on a relentless upward path through to the end of the decade, producing more oil and gas, with the average cost of a barrel, or cubic foot, increasing steadily year-by-year, they say.

However, the analysts expect a slowdown in capital spending to continue in regions such as Canada, where upstream spending fell by 30% in 2009 and, while investment levels have stabilized, they may not return to the peak levels of 2008 within the next five or even 10 years. For more information, go towww.woodmac.com.

Global recovery

Not to risk becoming the wallflower at the Christmas Predictions Ball, the Global Energy & Resources group of Deloitte Touche Tohmatsu Ltd. has published its predictions for the year ahead. Admitting that “predictions by themselves are not facts” but can be helpful when formulating strategy, Deloitte nevertheless foresees a more robust global economy for 2011 accompanied by increase vigor in the oil and gas sector.

“As the fog lifts over the global economy,” Deloitte says, “a recovery is clearly underway in places as disparate as China, the United States, Brazil, Australia, and India. Other markets are showing signs of recovery and there is no significant economy that remains mired in recession.”

Most importantly, Deloitte notes the growing importance of the role of technology in achieving success in the oil and gas sector.

“Technology,” they say, “remains a critical component in petroleum exploration and production (E&P) operations. From seismic surveys to deepwater drilling and artificial intelligence, the operations of today’s oil companies’ exploration and production departments resemble a vibrant, high-tech nerve center easily mistaken for use in deep space exploration.”

Although the oil and gas industry has historically supported technology development, at no time in the past have the complexities of exploration in remote, deeper and geographically challenging locations been as high as today, says Deloitte. As an example, they cite the development of an innovative seabed drilling rig by Statoil and Stavanger-based Seabed Rig.

“The drilling equipment features a patented encapsulated design,” Deloitte notes, “which allows it to withstand extreme conditions and be remotely control from a surface vessel. The rig began testing this summer and is like to see action in deepwater and Arctic seas soon. The new rig development is part of a strategy that seeks to break down the drilling process into steps, analyzing them for optimization and comparing performance at individual rigs.”

You can view the full report by visitingwww.deloitte.com/energypredictions2011.

$7.4 billion for FLNG

Finally, Douglas-Westwood forecasts that the floating liquefied natural gas (FLNG) business is poised for substantial growth, particularly within the liquefaction sector, and will be worth $7.4 billion by 2017.

In its new report, “The World FLNG Market Report 2011-2017”, the energy analysts address both the floating regasification and the floating liquefaction vessel markets and quantify the size of the opportunity in volume and value.

According to Douglas-Westwood, the International Energy Agency (IEA) forecasts that annual growth in natural gas supply will average 1.7% from 2009 to 2030. By 2030, Douglas-Westwood reports, natural gas will account for 23% of total worldwide primary energy supply. For information, go to[email protected].

Decommissioning outlook

Finally, Deloitte teamed up with energy analysts Douglas-Westwood for a look at the future of decommissioning of offshore structures. The result – the UKCS Offshore Decommissioning Report 2010-2040 by Douglas-Westwood and Deloitte’s Petroleum Services Group – focuses on the expenditure required to carry out this work, “providing essential information for decision-makers in oil companies and contracting and supply industries, government departments and financial institutions.”

The decommissioning of offshore oil and gas platforms, the report finds, is becoming increasingly important, at least in the UK sector of the North Sea, as many UKCS fields are approaching end-of-life. In fact, the analysts say, “more than 260 will have to be wholly or partially removed from UK waters over the next 30 years.”

The report presents two scenarios. The first scenario presents a ‘business as usual’ situation whereby existing heavy lift vessels are used to carry out decommissioning projects. The second assumes a step change in offshore lifting technology and the development of super heavylift vessels (SLVs) that are capable of lifting upwards of 15,000 tons at a time. The bottom-up Douglas-Westwood cost forecast is generated from these scenarios and, the report authors say, covers all decommissioning aspects from the plugging and abandonment of subsea wells to onshore deconstruction and recycling. “Attention is also paid to specialist equipment requirements and the locations to which decommissioned infrastructure can be sent for disposal, re-use and/or recycling,” says the report. For information, contact[email protected].