Surging demand forecast for offshore energy servicesNews // January 11, 2008
In his annual address to some 150 oil industry executives at the Society of Underwater Technology in Houston earlier this week, John Westwood, of energy business analysts Douglas-Westwood, delivered a portfolio of forecasts of future prospects for offshore energy industry business sectors.
"The offshore oilfield services sector is facing unprecedented levels of business; some companies that might normally have a six-month backlog are now booking work for 2011. Recent US$100 oil has only served to add to the already massive demand for the products and services of firms that supply the offshore oil and gas companies. Suppliers are virtually beating off the customers, but demand continues to grow," said Westwood.
He particularly highlighted deepwater oil and gas exploration and production (E&P). “Virtually the only place where giant fields will be found in future years is in deepwater, with Brazil’s recent Tupi elephant find is testament to that. Douglas-Westwood expects world deepwater production to grow from 6 million barrels of oil equivalent per day in 2007 to 11 mm boe/day in 2011.”
Quoting from ‘The World Deepwater Report’ he said that nearly US$$25 billion will be spent annually in deepwater capital expenditure by 2012. This represents a 30 per cent growth for the 2008-2012 period in comparison to the previous five years.
“This will drive demand for deepwater drilling rigs, floating production systems, subsea production hardware and more,” said Westwood.
“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).
“In the early 1970s some 80 per cent of world oil reserves were controlled by the International Oil Companies (IOCs), but now the position has completely reversed with the NOCs holding the remaining 80 per cent.
“On top of all this, even in shallow waters, the oil companies now face much higher costs. For example, per barrel lifting costs in the UK sector of the North Sea in 2005 was US$15, but by 2007 it had increased by 67 per cent to US$25.
“There are literally hundreds of small undeveloped offshore fields worldwide but ’big oil’ needs big fields. 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 where the prospects of massive reserves (estimates range from 160 – 300 billion barrels of oil equivalent) 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.
“Times are due to get even more interesting – for some years 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. So the key question that remains is ‘where can big oil profitably re-invest’”?
Oilfield services companies (OFS) have become an investor favourite. Douglas-Westwood’s index of 10 leading deepwater OFS companies has since November 2006 risen by 69 per cent, whilst in comparison the FT oil & gas companies’ index has grown by 11 per cent. Individual deepwater sector stars include drilling rig operator Transocean; up 105 per cent and subsea flexible pipe manufacturer Wellstream; up 207 per cent.
“Offshore energy offers exciting growth prospects. Although presently focussed on oil and gas, the developing new sector of offshore renewable energy is now set for strong growth. In the past five-years a total of some $2 billion has been spent installing offshore wind turbines. However, Douglas-Westwood’s forecast The World Offshore Wind Report states that that over the period 2008-2012, US$16 billion will be spent installing over 1,300 turbines with a power output of 4.5GW.
“The real issue the offshore supply chain companies face is trying to keep pace with ever-increasing demand” said Westwood.