With new oil and natural gas reserves being developed in ever-deeper waters, capital spending over the next five years for subsea hardware is expected to jump by almost one-quarter compared with the last five years, energy consultant Douglas-Westwood reported on Tuesday.

The UK-based firm's first World Subsea Hardware Market Report forecasts 23% growth in capital expenditures (capex) over 2011-2015, with $139 billion expected to be spent worldwide.

"This study highlights the astonishing technical capability that exists within the subsea sector and puts into perspective just how capital-intensive oil and gas extraction now is for upstream [exploration and production] players," said Douglas-Westwood Director Steve Robertson.

"The technology that is being deployed is unlocking reserves that would previously have been impossible to access, but at a price, and as a result our study shows the sector has become a very sizable opportunity for the oilfield service and equipment community."

The "Golden Triangle," which consists of the Gulf of Mexico and offshore West Africa and Brazil, "will make up over 60% of global subsea production, SURF [subsea, umbilicals, risers and flowlines] and processing hardware expenditure over the forecast period," said the authors. "Africa will remain the largest market for upstream hardware; however, looking beyond the forecast period Latin America with Brazil's developments in the presalt Santos Basin could surpass African expenditure.

"North American spend will remain important, but is likely to see much less growth than Africa and Latin America, while North Sea activity is forecast for a slight decline in spend. These growth rates reflect the relative maturity of the regions. In addition, Asia and 'Australasia' present sizeable markets."

Spending for hardware to operate in the deepwater is expected to account for more than half of the total market spend in the next five years "and illustrates the increasing importance of deepwater reserves for the industry," the report said.

Development "is being driven by the challenges involved in accessing new reserves," said the authors. "Fields are being developed in deeper waters, from increasingly remote locations and in extreme 'metocean' conditions." Metocean, an abbreviation of "meteorology" and "oceanography," is used by the offshore industry to describe the physical environment near facilities, such as offshore platforms.

"Smaller, more widely scattered reserves, which were in the past uneconomic or too technologically challenging to develop, are now benefiting from higher oil prices and more advanced subsea hardware solutions," the report said. "Subsea developments continue to account for an ever increasing-share of offshore activity."

Higher oil prices also are driving drillers to look for reserves, said the authors.

"The economic downturn did undoubtedly hit some subsea projects, due to their relative complexity and the associated costs, with most operators using conservative hurdle rates to determine levels of investment. We have witnessed some moderation and reversal of the cost inflation that occurred in the years leading up to 2008."

Spending to build subsea pipelines will account for more than half of all subsea capex over the coming five years, according to Douglas-Westwood.

"Eastern Europe and the Former Soviet Union, Asia and the Middle East are expected to account for 78% of all pipeline expenditure," said Douglas-Westwood analyst Ian Jones. "This huge market is characterized by a number of multi-billion-dollar projects which are expected over the next five years -- albeit this is dependent upon various political and economical factors, which are likely to be dynamic."

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