Global offshore prospects in ‘delicate recovery’

A “delicate recovery” is predicted for the global offshore E&P business going forward, according to Steven Kopits, MD of Douglas-Westwood/NY, speaking to the Society of Underwater Technology in Houston today.

Offshore staff

HOUSTON – A “delicate recovery” is predicted for the global offshore E&P business going forward, according to Steven Kopits, MD of Douglas-Westwood/NY, speaking to the Society of Underwater Technology in Houston today.

Among the factors affecting how the upstream business performs in the near future are the price of oil, Iraq’s pace of new production, and a possible renaissance of natural gas in the United States, and Chinese oil consumption.

When the price of crude oil in the United States equals 4% of the Gross Domestic Product, or about $80/bbl, demand begins to drop as the general economy slides toward recession, Kopits said. That tends to hold the price down.

China’s oil use is predicted to equal that of the United States in 2018, and then double over the next seven years, he added. How this will affect the world trade in oil may depend upon Iraq. Iraq is the “supply ringer” for the future. Not only does Iraq have the capacity to produce at high levels, most of that oil will be available for export and not used in the local infrastructure.

The future of US natural gas demand is tied somewhat to the political environment. Discounting that, Kopits said that the price of natural gas per BTU seems to be holding at half that of oil and that spread has become institutionalized. One outcome of that could be broader use of natural gas as a vehicle fuel.

Turning to the numbers, Douglas-Westwood sees offshore spending recovering to $439 billion in 2010, up 11% from 2009. Spending on production is expected to grow from $260 billion in 2008 to $360 billion in 2013.

The big winner in the recovery, said Kopits, could be the offshore operations and maintenance business. He said this segment could go from $53 billion in 2009 to a cumulative $330 billion over the next five years.

While the drop in oil and gas activity over the recent years “has ended the ‘price is no object’ environment,” Kopits said, the question now is going to be “If we find it, can we afford to bring it up?”

01/14/2010

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