Global offshore energy spending will rise by almost one-third between now and 2013 versus 2004-2008, despite cuts in capital spending budgets, according to an analysis by Douglas-Westwood.
The analysis, using data compiled by Energyfiles Global Database, is part of Douglas-Westwood’s “World Offshore Drilling Spend Forecast 2009-2013.” The consultant estimates offshore spending will jump 32% between now and 2013. Most of the spending increases actually are seen coming after 2010 when companies return to previous levels of growth, the forecast noted. Over the five-year period, spending is expected to total $367 billion. The global drilling market by the end of the period will be worth an estimated $89 billion, more than double its worth in 2004.
The total number of global wells is forecast to track 7% higher over the five-period, even with sharp cuts to spending this year.
“Approximately 18,310 offshore wells were drilled over the last five years,” said Energyfiles’ Michael R. Smith, who wrote the report. “The forecast is of a decline in 2009, followed by consistently rising numbers including a sharp jump in 2011, to total 19,570 by 2013. Asia is still seeing the highest activity, followed by North America and then Western Europe.”
Because of a “lack of opportunity,” Smith said, “shallow water exploratory drilling has been on a declining trend, albeit with a modest price-led resurgence in 2006 and 2007. Shallow water exploratory drilling levels are not expected to ever return to their most recent 2007 peak. but growth in deepwater drilling has supported exploratory drilling over the last five years — to reach 40% of all exploratory wells by 2013. The steady growth is a result of new ultra deepwater targets becoming increasingly viable, as the capability of deepwater production systems is improved, giving additional encouragement to explorers to take these expensive risks.”
Surging commodity prices led to rapid development in the shallow waters offshore until 2006, when development flattened, said Smith.
“A decline is now forecast followed by returning growth as many of the delayed projects of 2009 are restarted,” he said. “Growth would be even more marked if not for better, more productive well bores allowing fewer wells per field. And total development drilling levels will be supported by continued rapid growth in deepwater drilling from 2010.”
Douglas-Westwood’s Steve Robertson said the “impact of the recent downturn is clearly more marked within the shallow water segment, which in turn has impacted on jackup utilization and day rates. However, high-spec floating rigs capable of working in deepwater and harsh environments continue to be in demand and utilization and day rates are holding up well.”
Engineering is the biggest cost sector in offshore drilling, followed by rigs, noted Smith.
“In 2006 and 2007 there was a disproportionately large surge in rig costs as the higher specification, high day rate rigs most required were in short supply,” said Smith. “But relative spends for engineering and rigs are expected to remain fairly constant through to 2013 with a wave of new rigs entering the market. Modest declines in rig utilization are expected over the next two or three years.
“From 2010 a return to increases in spending are forecast, especially directed at deepwater development projects,” he said. “The big expansion in the number of rigs available for these projects will just about meet market demand. Even though total well drilling numbers are forecast to flatten off after 2012, this will not prevent overall spends continuing to rise as wells become ever more costly and oil prices surge again.”
The global recession began to creep into offshore spending in 2008, the study found.
As economic growth began to slow there was an “inevitable knock-on effect into energy demand,” the report noted. Global oil demand, which stood at about 85,000 b/d in 2007, “declined in 2008 and will decline even further in 2009 — the first time this has happened for two years running since 1983.” In early 2008 high commodity prices and a global shortage of drilling opportunities ensured that even the most expensive offshore drilling projects went ahead. This year “we have across-the-board deflation in prices and delays in both shallow and deepwater projects,” said the report.
“Although global economic recessions have always led to declining energy demand, the resultant lower prices soon engineer a recovery in demand and then prices, especially as OPEC acts to rein in output,” Smith said. “Thus in early 2009 the supply/demand balance for oil had already stabilized, despite the worsening recession. The numbers in this report point to a return to stability in 2010 and, by 2011, a strong growth in the offshore drilling industry is forecast, especially in high technology areas.”
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