Low oil prices and project delays might be casting dark clouds on current deepwater operations but a research firm’s forecast shows spending will climb after 2016.
Led by developments offshore Latin America and West Africa, the energy research firm Douglas-Westwood projects deepwater capital expenditure (capex) will jump by 69 percent to $210bn between 2015-2019, compared to the previous five-year period.
‘Africa, Latin America and North America will continue to dominate deepwater capex, with $173bn set to be spent over the next five years with Africa forecast to experience the greatest growth,’ said Balwinder Rangi of Douglas-Westwood. ‘The development of East African natural gas basins has not been aided by the plunge in Asian gas prices; however, the development of these gas basins is inevitable.’
Oil prices have plummeted from more than $100 per barrel in June 2014 to about $63 per barrel today, a result of bountiful supplies that continue to outpace demand. In turn, oil and gas companies have been cutting expenses through layoffs and delaying projects, including in longer-term deepwater plays, as they await better economics.
However, despite the forecast period’s rocky start, a turnaround is predicted post-2016, assuming market conditions improve. ‘The expected recovery of oil prices will spark a revival in LNG-related activities in the region towards the end of the forecast period,’ Rangi said.
Deepwater offshore Mozambique and Tanzania is among the most promising. Anadarko and its partners have reportedly discovered more than 75 trillion cubic feet of estimated recoverable gas in Offshore Area 1 of the Rovuma Basin.
The company mentioned progress on some of its deepwater projects during its fiscal-year 2014 results announcement. Highlights included advancing long-term Mozambique LNG sales agreements as well as progress offshore other parts of Africa. Anadarko’s non-operated 80,000-barrels-per-day Tweneboa, Enyenra and Ntomme development offshore Ghana remains on schedule with first production expected in 2016.
The forecast said development offshore Africa is not expected to be greater than Latin America. However, that remains to be seen given deepwater powerhouse Petrobras’ present struggles. The company has been pushed and pulled by fallout from a corruption scandal, the sale of $13.7 billion in assets and delivery delays—all while trying to develop massive presalt discoveries.
‘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,’ Rangi said. ‘[While] 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.’