About $63bn-worth of investment planned for oil and gas production
Offsetting crude oil production declines will be the key challenge for the global oil industry, according to a 23 November report by US investment bank Morgan Stanley, presenting a positive outlook for engineering firms in the sector.
The bank calculates that 23.6 million barrels a day (b/d) of production additions are required by 2017 to offset declines in current supply. This represents more than a quarter of 2011’s oil supplies.
This will provide plenty of opportunities in the Middle East region for engineering, procurement and construction (EPC) contractors in both the upstream and downstream sectors, with European firms particularly well placed to capitalise on the trend. The Middle East region accounts for almost 40 per cent of the 847 global EPC projects analysed by Morgan Stanley’s commodities team.
This represents some 26 per cent of the gross production additions Morgan Stanley expects until the end of the decade. This includes 13 critical onshore projects, such as the development of Iraq’s southern oil fields.
UK energy consultant, Wood Mackenzie estimates there is some $237bn-worth of upstream investment in just 22 projects between 2012 and 2020, which will be accessible to European EPC firms. This includes non-EPC investment, however, such as drilling and services. Of projects, the development of the Romola oil field is perhaps the biggest draw, with a potential spend of up to $34bn over the period 2012 to 2020 by the developer BP and its partner, China National Petroleum Corporation.
Onshore fields account for 51 per cent of the production additions planned until 2020. The report highlights the market share won by South Korean and European firms. South Korean firms have been at their most successful in securing contracts for downstream refining and petrochemicals projects, particularly in Saudi Arabia and the UAE.
Between 2009 and 2011, South Korean firms won 44 per cent of the work in the refining sector, 43 per cent of the petrochemicals work and 47 per cent in gas processing. However, in upstream oil and gas production, a sector worth a total of $44bn over the period, the “South Koreans’ collective penetration of the upstream market has been severely limited”, says the report, with 4 per cent compared to 35 per cent won by European EPC firms.
With a planned investment of $63bn, the upstream sector is the second largest sector only just behind refining at $65bn with potential contract awards in the next 18 months.
“We see a positive outlook for European oil services firms such as [the UK’s] Petrofac, [Italy’s] Saipem and [France’s] Technip,” says the report. The authors add that a significant proportion of these contracts are in Iraq, where the firms such as Saipem and Petrofac will enjoy a degree of first-mover advantage.