A Review of the Nigerian Energy Industry

Deepwater Expenditure to Increase to $210bn – Douglas-Westwood

07 April 2015, Lagos – Despite imminent delays of projects, a new report by Douglas-Westwood has predicted that deepwater spend will total $210 billion, representing an increase of 69 per cent between 2015 and 2019, compared to the preceding five-year period.

offshore-oil-rig-Newfoundland-Labrador-Statoil-Canada-Bay-du-Nord-light-sweet-crude-API34-Husky-Energy-Calgary-Norway-EDIWeeklyThe report titled “Douglas-Westwood’s (DW) World Deepwater Market Forecast 2015-2019” noted that as production from mature basins onshore and in shallow water declines, development of deepwater reserves has become increasingly vital, particularly to deep pocket multinational oil companies.

However, the recent oil price decline has intensified pressure on budgets causing numerous operators to defer sanctioning of capital intensive developments.

According to the report, Africa, Latin America, and North America will continue to dominate deepwater capital expenditure with $173 billion set to be spent over the next five years with Africa forecast to experience the greatest growth.

In addition to low oil prices, building oversupply and the lack of rig demand will impact capex growth over the forecast period.

In recent years, record deepwater rig demand has resulted in unprecedented levels of rig orders.

Douglas-Westwood has identified a trough in global expenditure in 2015 and 2016 primarily driven by delays to delivery of FPS units in Latin America.

The author of the report, Mr. Mark Adeosun, noted that as s production from mature basins onshore and in shallow water declines, development of deepwater reserves has become increasingly vital, particularly to the world’s oil majors.

“However, the recent oil price decline has intensified pressure on operator budgets. Consequently, numerous operators have deferred sanctioning of capital intensive developments. DW has identified a trough in global expenditure in 2015 and 2016 primarily driven by delays to delivery of FPS units in Latin America. We expect deepwater Capex to rise post-2016, driven by the continued development of deepwater fields off Latin America and West Africa, as well as new developments off East Africa. However, in the short-term, delays as a result of the oil price are causing significantly slower growth than was expected a year ago,” he explained.

Assistant report editor, Balwinder Rangi said Africa, Latin America and North America would continue to dominate deepwater Capex, with $173 billion set to be spent over the next five years with Africa forecast to experience the greatest growth.

According to Rangi, the development of East African natural gas basins has not been aided by the plunge in Asian gas prices.

Rangi added however that the development of these gas basins is inevitable, stressing that the expected recovery of oil prices will spark a revival in LNG-related activities in the region towards the end of the forecast period.

According to Rangi, Latin America will, however, remain the largest market and North America is expected to experience the least growth.

“In addition to the low oil price environment and building oversupply, the lack of rig demand will impact Capex growth over the forecast period. Current, industry consensus indicates that an oil price recovery is expected in the mid-to-long term. Whilst the economic feasibility of deepwater fields varies, typically long-term oil prices of $80 per barrel would ensure the viability of the majority of developments,” Rangi added.

– This Day

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