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North America Upstream to Top Global Spending in 2012

Led by spending in North America's offshore and onshore, global upstream expenditures are set to reach a combined record of $1.23 trillion this year, according to the latest IHS Upstream Spending Report.

Global capital expenditures (capex) on new projects in 2012 is forecast to reach a new record of $728 billion, while operating expenditures (opex) is likely to hit a record $500 billion this year, IHS found.

"The brief lull in expenditures in 2009 and 2010 caused by the 'Great Recession' is behind us," said IHS Chief Energy Strategist David Hobbs. "Robust oil prices and the growth of North American unconventional gas, which already accounts for $128 billion in 2012 spending, will create new high water marks for investment in capex and opex that surpass pre-recession highs.

"Understanding where spending is headed will be critical for both buyers and sellers in the supply chain to meet market needs."

The quarterly research tracks historical spending and builds out future spending forecasts based on an analysis of the construction timing for major projects around the globe. The IHS team forecasts spending over a five-year period by onshore and offshore, region and by business segment to provide an overview of spending patterns and trends in the oil and gas industry.

Spending increases are projected for every region of the globe, according to the report, "reflecting a large increase in activity across the oil and gas industry as sustained high oil prices (and gas prices outside of North America) remain well above breakeven levels for most proposed oil and gas projects. At the same time tighter markets are leading to high project cost inflation worldwide."

North America is the leader, with total capex and opex spending projected to be $392 billion this year. Capex is forecast to hit $274 billion, lifted by unconventional production in oilsands, tight oil, shale gas, tight gas and coalbed methane, which together account for about $128 billion of the total capex.

Because of continued investments in unconventional resources, total North America spending likely will reach $528 billion by 2016, the IHS forecast indicates.

Although the onshore continues to command the largest share of capex worldwide, in terms of growth, offshore capex will continue to outpace capex going forward, said the survey. Offshore spending is expected to rise 58% from 2011 through 2016, versus a 39% jump in onshore spending over the same period. Total opex is likely to hit $671 billion in 2016, "as new fields are brought online and due to rising global costs per unit of oil/gas produced."

IHS researchers also are forecasting that:

The Asia-Pacific region trails North America with $238 billion in expected 2012 upstream spending, comprised of $169 billion capex and $69 billion opex, the IHS survey found. Total spending is forecast to rise to $323 billion in 2016.

"While onshore projects are the primary driver for North American spending growth, the prominent source of the rise in Asia-Pacific spending is offshore," according to the IHS survey. "Asia-Pacific currently has the highest 2012 offshore spending of any region at $104 billion, of which $67 billion is capex. The region will also be a key contributor to growth in global offshore capex going forwards, driven by major offshore developments in the region, particularly offshore Australia."

Offshore capex for all regions is estimated to reach $213 billion in 2012, well above the 2008 peak, and is projected to reach $297 billion in 2016, of which the Asia-Pacific region will represent close to one-third, at 31%.

The Middle East was found to be one of the main growth regions in terms of total spending going forward, with capex up almost 80% from 2011 to 2016. In Latin America total spending is expected to be almost $230 billion this year, and the second largest offshore region after the Asia-Pacific in terms of upstream capex through the 2012-2016 period, led by new spending in offshore Brazil.

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