Worldwide offshore oil production has risen by just over a third since 1991 and will continue to rise at about the same rate, reaching 35 million b/d in 2011. However, offshore natural gas production more than doubled between 1991 and 2006 to 867 billion cubic meters (30.6 Tcf), and gas is forecast to almost double again by 2011, Douglas-Westwood Ltd. stated in a new report.

These steady increases in oil production and surging gas production will drive industry annual expenditure up from $219 billion in 2006 to more than $275 billion by 2011, the UK-based energy consultant said. The forecasts are part of Douglas-Westwood's "World Offshore Oil & Gas Production and Spend Forecast 2007-2011."

"Growth is spreading," said author Michael R. Smith. "Offshore oil & gas fields are distributed across the world but just three regions, the North Sea, Gulf of Mexico and South China Sea, attract over 50% of spending. Yet relative shares are changing, with growth forecast everywhere except Western Europe."

Smith said "expensive" deepwater projects in West Africa and the Gulf of Mexico, along with projects in the Caspian Sea and Sakhalin and Persian Gulf are disproportionately increasing spending shares in these regions. The consultant is forecasting offshore oil output to peak within a decade at less than 40 million b/d, while the global peak for gas is not predicted until "at least" 2030.

"Of course, a shortage of spare oil and gas production capacity led to the recent spending surge," said Smith. "From 2002, prices significantly increased for equipment, consumables and services, and this was especially so in 2005 and 2006 as demand rose and fuel costs escalated. The magnitude of growth, especially in rig rates, was attributable to intense competition within the service sector over the previous years of relatively low oil prices, which led to underinvestment in higher-specification rigs, new production systems and associated hardware, and in personnel."

The forecast for oil prices over the next five years is erratic, but generally lower levels are forecast this year as oil demand growth is forced down by higher oil prices; as new production outside the regions controlled by the Organization of Petroleum Exporting Countries (OPEC) enters the market; and as liquefied natural gas and coal continue to replace oil use in Asia. "Modest" amounts of other alternative energy sources also will slightly depress prices.

Renewed oil price escalation is forecast from 2009, which eventually will lead to more cost inflation. However, Smith noted that "not all cost escalation can be ascribed to inflation. Costs are also going up as more advanced rigs, production systems and services are used for deeper and more complex reservoirs and more extreme conditions."

High oil and gas prices from now to 2011 are expected to result in continued strong growth in all parts of the offshore oil and gas sector, but over the next five years, the prime mover will be the less alluring operational sector, Smith said.

Capital expenditures (capex) have nearly doubled since 2002, "with most of the growth occurring in the last two years, dominated by spending on drilling and platforms. But hardly any capex growth is forecast for the five years to 2011, although floating and subsea production solutions, especially in deep waters, are likely to continue to expand their shares."

Douglas-Westwood's report determines capex levels based on production additions. Every year new production comes onstream, which both adds capacity and replaces lost capacity as older fields deplete. The expected volume of new production is modeled using these two increments of output: growth and replacement, the sum of which corresponds to the amount and cost of new capacity that is added each year.

Deepwater production additions are increasing in all regions where deepwater prospects exist, the report noted. Additions in West Africa are expected to show considerable growth while deepwater additions in Brazil and the Gulf of Mexico will modestly decline toward the end of the period. However, gas production will continue to grow in those areas.

Up to 2011 most sectors of the offshore industry will continue to be equipment- and people resource-constrained, the authors said. Consequently, day rates will remain high, especially for capital assets such as high-specification drilling rigs and other vessels. The experienced personnel needed to design, build and operate drilling and production equipment also will command a growing premium.

Only the most demanding environments in ultra deepwaters and Arctic regions are expected to offer new large-scale opportunities by the end of the period, Smith said.

"Now it is the turn of the floating production vessel and small-scale platform and subsea market to really escalate, although offshore gas still has considerable opportunities related to the advent of new production and conversion technologies, the forced growth of gas markets in the developing world, and pressures by all governments to eradicate gas flaring," Smith said.

To obtain information on the report, visit www.dw-1.com.

©Copyright 2007 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.