The Next Big Trend In Offshore Oil & Gas | OilPrice.com

The offshore industry will shift its focus from oil to natural gas in the next couple of decades, while wind investment is also expected to soar

The offshore sector will increasingly focus on natural gas instead of oil over the next few decades, while policy support and technology improvements could also see offshore investment shift in favor of wind power. However, in the short run, offshore drilling is set for a resurgence.

The oil market downturn in 2014 hit offshore drilling hard. Developing an oil field offshore is a huge, complex, expensive and long-term undertaking, a proposition that fell out of favor when oil prices crashed. By comparison, shale drilling is relatively cheap and short-term and over the last few years, capital flowed out of the offshore sector and into the shale patch. Even the oil majors pivoted towards small, short-cycle shale drilling.

Today, a quarter of the world’s oil supply comes from offshore at about 26-27 mb/d, a figure that has remained steady over the past decade, which translates into a declining share of the overall market as total supply continues to grow.

But offshore costs have declined significantly over the past four years, so much so that the industry is starting to step up spending once again. Whereas a typical offshore project in the North Sea or in the U.S. Gulf of Mexico had a breakeven price between $60 and $80 per barrel prior to 2014, these days those costs have plunged to $25 to $40 per barrel, according to a new report from the International Energy Agency.

“Designs are being simplified, standardized and (in some cases) downsized, and a large overhang in the market for offshore services and equipment is also helping to exert downward pressure on costs – although this could be reversed as activity levels pick up,” the IEA wrote in its report.

An estimated 100 offshore projects could receive a greenlight this year, according to Rystad Energy, up from just 60 last year and 40 in 2016. “The offshore suppliers have created their own comeback,” Audun Martinsen, VP of Oilfield Service Research at Rystad Energy, said in a statement. “Their constant search for cost reductions and streamlining of operations has enabled them to cut offshore project costs by almost 50% compared to the heights of the last cycle.”

But even as offshore makes a comeback, the makeup of the sector is set for dramatic change in the years ahead. Oil companies are going to shift away from shallow water drilling, which tends to be mature, and move into deeper waters.Related: All Eyes On Iran As Oil Prices Soar

Meanwhile, companies will also increasingly target natural gas production instead of oil. Offshore wind is also set to grow dramatically, although the pace of growth depends quite a bit on the extent to which governments push policy in the direction of low-carbon energy.

The IEA lays out two scenarios, which it dubs the “New Policies Scenario” and the “Sustainable Development Scenario.” The former is a more business-as-usual approach, although it incorporates technology innovation and some policies that have already been announced. The Sustainable Development Scenario encompasses a much more dramatic energy transition, as it assumes policies go into effect to reach the goals in the Paris Climate Agreement.

In both scenarios, natural gas takes on a greater role in the offshore sector, and wind power also makes gains. But in a business-as-usual future, offshore oil production remains relatively unchanged through 2040, and oil demand does not peak before then. U.S. shale levels off in the 2020s, and because the world will still need new supply, particularly to offset mature oil fields, the offshore sector will be called upon. Because offshore production is generally higher cost, “the marginal project required to balance the market in the New Policies Scenario becomes steadily more expensive, despite the assumption of continued technological progress,” the IEA said.

Most activity will be concentrated in a relative few number of places. “Brazil remains the global leader in deepwater production; Mexico also sees rapid growth as a result of successful bidding rounds since 2016, alongside the United States, African producers and some new players including Guyana and Suriname,” the IEA said.

Natural gas takes on a larger share, with gas demand set to rise and questions surrounding long-term oil demand. Most of the new production will come from the Middle East and offshore Tanzania and Mozambique.

Still, there is a tidal wave of decommissioning looming. The IEA says that between 2,500 and 3,000 offshore oil and gas projects will have to be decommissioned through 2040.Related: Higher Oil Prices Are OPEC’s Only Concern

Offshore wind generation surges ten-fold through 2040 even in the more cautious scenario, pushed along by supportive policies in the EU and China, among other places. Technology is also improving rapidly, with the height of turbines doubling from 2010 to 2016 to over 200 meters. The IEA notes that a 12-megawatt turbine design is now in development. Floating turbines are also now getting underway.

The scaling up of wind generation, moving further offshore and into more attractive areas, is allowing for more generation at a lower cost. Those trends will continue. Offshore wind is currently 150 percent more expensive than onshore wind, but those costs will continue to fall.

However, in the IEA’s Sustainable Development Scenario, a much more dramatic transformation takes hold. Wind captures a third of total offshore investment by the 2030s, pulling equal to offshore oil and gas. Wind power rises from 14 gigawatts (GW) today to 160 GW in the New Policies Scenario in 2040, but it rises to 350 GW in the Sustainable Development Scenario. But even here the IEA offers a rather conservative estimate – offshore wind only accounts for 4 percent of global electricity generation by 2040 in that scenario.

Oil production remains flat at 27 mb/d in 2040 in the New Policies Scenario, but dips to 20 mb/d in the Sustainable Development Scenario as oil demand peaks and falls, which results in permanently lower oil prices.

Source: The Next Big Trend In Offshore Oil & Gas | OilPrice.com

The Global Oil Market Is About to Be Upended 

The U.S. and Canada may no longer have this type of production all to themselves.

Bahrain discovered the first oil on the Arab side of the Gulf in 1932. It took a long time for the small island to find anything of similar significance, but its recent announcement of an enormous shale oil resource under its shallow waters should not be underestimated: Commercial offshore shale oil production would be a first for the worldwide industry.

Perhaps more significant is that this discovery has the potential to boost Middle East output, while raising the odds that shale oil production outside the U.S. and Canada finally takes off. The Middle East has the advantages of good geology, existing petroleum infrastructure, and a lack of environmental or community opposition. To be sure, local producers will have to offer attractive terms to international investors to compensate for the higher costs and technical risks than their conventional fields, source fresh-water or use other hydraulic fracturing technologies, and develop or bring in service companies skilled in unconventional resources. But given that U.S. shale specialists have tended to stay at home, the Bahrain find offers interesting possibilities for large international oil companies as partners.

Given their proximity, the newfound resources probably stretch into Saudi and perhaps Qatari waters. Saudi Arabia, with its own first find the Dammam field, lies just 25 kilometers (15.5 miles) to the west of Bahrain, the countries linked by the King Fahd Causeway. Some 20 kilometers to the southeast is Qatar. Though a holder of the world’s third-largest gas reserves, Doha’s mature oil production is slowly declining. Shale production could give it a boost if it’s able to sidestep the obstacles posed by an embargo imposed by Bahrain, Saudi Arabia and the U.A.E. since June.

Halliburton said the resources found by Bahrain were on the “edge of the conventional-unconventional type of plays,” and it sounds somewhat like the famous Bakken of North Dakota. The mid-case estimate is for 81.5 billion barrels of oil and 13.7 trillion cubic feet of gas. Based on U.S. production numbers, five to 10 percent of the oil might be recoverable. Good flow-rates will be needed to compensate for the higher cost of offshore wells, although it might be possible to reach at least some of the resources by horizontal drilling from onshore sites, or artificially-dredged islands.

The main Middle East producers, such as Saudi Arabia, Iran, Iraq and Abu Dhabi, will not turn immediately to shale oil because of their giant, low-cost conventional resources. But several of them need new gas supplies. And shale oil is of great interest for the region’s more mature conventional producers — Oman, Qatar and Egypt — as well as for non-producing Jordan. If the current OPEC/non-OPEC pact endures, shale oil will dim the prospects for the smaller Middle East producers’ continuing adherence.

Saudi Arabia has been seeking to develop shale gas for some time, with production starting in its remote northwest. Saudi Aramco’s general manager of unconventional resources, Khalid Al Abdulqader, said in March that the Jurassic source rocks in the Jafurah Basin, which lies between the world’s biggest oil field Ghawar to the west, the Gulf to the east and Bahrain to the north, were similar in quantity and quality to Texas’s famous Eagle Ford shale, which is estimated to hold 12 billion barrels of recoverable oil and 122 trillion cubic feet of recoverable gas.

Kuwait has already begun pilot projects in its northern Jurassic resources, containing light, tight oil and sour gas. Oman’s liquefied natural gas (LNG) export facilities have been running at full capacity this year for the first time since 2007 due to BP’s development of its Khazzan tight gas field. LNG exporters, including U.S. ones, hoping to tap the Middle East’s growing energy appetite have to contend with growing competition.

Bahrain intends first to appraise the discovery with the help of service companies including Schlumberger and Halliburton, which will drill two wells this year, and then to look for international partners. Shell has assisted with studies of LNG imports and is advising Kuwait on its unconventional Jurassic reservoirs. ENI, which has enjoyed recent success in deepwater Egyptian gas, held talks in Manama in May. Total, ExxonMobil and BP, all with large gas projects in the wider region, could also be candidates, as could Apache and Anadarko, which are experienced in North Africa.

Source: The Global Oil Market Is About to Be Upended – Bloomberg

Oil prices rise on tightening supply, strong demand

SINGAPORE (Reuters) – Oil prices rose on Monday over supply concerns in the Middle East and as the U.S. market showed further signs of tightening while demand in Asia keeps rising.

Source: Oil prices rise on tightening supply, strong demand

Norway’s Statoil says it has made an oil discovery in the outer Moray Firth containing up to 130m barrels – a find that could help to pull the region’s oil and gas producers further out of a slowdown.

Source: Statoil makes UK oil discovery of up to 130m barrels

Crude oil is on pace to wrap up a strong September, having gained a little over 9 percent month to date.

Source: Oil could soon overtake its 2017 highs, strategist says

Oil prices were basically flat early on Wednesday, but $80 oil could be just around the corner, according to analyst Jodie Gunzberg

Source: Oil Prices Steady, But $80 Oil Is Coming, Says Analyst | OilPrice.com

Growth in the oil and gas industry is likely to slow significantly over the next year as the recent rebound from the oil price crash runs its course, according to ratings agency Moody’s, which has removed its positive outlook for the sector.

Source: Moody’s cuts outlook on oil and gas sector as growth slows

Rising crude demand and the impact of OPEC production cuts sends price up more than 3%.

Source: Oil prices jump over 3% on rising demand and production cuts – BBC News

Chancellor Philip Hammond pledged the “broad shoulders” of the UK would continue to support Scotland as he announced £5 million funding…

Source: Scotland’s oil and gas industry to receive £5m funding (From HeraldScotland)

Oil and gas shares back on investors’ radar – Business News | The Star Online

 

After more than three years stuck in the doldrums, the oil and gas (O&G) industry seems to be back on investors’ radar.

This week, several O&G service providers made into the top volume list, as the price of oil heads for its third weekly gain.

Source: Oil and gas shares back on investors’ radar – Business News | The Star Online