While the oil price has fluctuated in 2018, the North Sea Basin has continued its steady recovery demonstrating it can still compete with lower cost regions around the world.
On the face of it, the Brent crude oil price has peaked and troughed, as shown by the October rise to nearly $90 USD a barrel, followed by the current 30% drop. Political and economic factors – US sanctions on Iran and warnings of over-supply – have caused this seemingly dramatic seesaw effect. However, it is a more settled picture than previous years and it is expected to remain so if OPEC puts measures in place to halt a saturated market.
Away from the oil price picture, there has been an encouraging uptick in activity, combined with focused leadership preparing for a very different energy future. Operators of all sizes are thinking more about the energy transition in the face of regulatory frameworks, government targets and their own consideration of environmental factors. Digital tools have the capability of unlocking efficiencies and applications to deal with these changes.
DNV GL’s own research, the Energy Transition Outlook 2018 foresees a shift towards cleaner energy, with gas the transition fuel, becoming the largest single fuel source from 2026 and peaking in 2035. It shows a long-term move to bio-fuels, electrification, hydrogen and renewables up to 2050 after the global requirement for oil peaks in the mid-2020s. Digitally-enabled technologies such as directional drilling and steerable drill bits and enhanced seismic backed by advanced data analytics will be crucial to ensure that exploration and production is economic and efficient.
Our eighth annual survey, Confidence and Control: the outlook for the oil and gas industry in 2018 provided strong indications that confidence has returned to the industry in terms of the expectations of senior leaders. The rising confidence in the North Sea, up from 18% of senior leaders in 2017 to 61% in 2018, is translating into rising activity levels, higher spending and major announcements. Supporting that positive change, 69% of respondents expected their company to maintain or increase capital spending in 2018, compared to 33% last year.
New projects are moving forward, including record production levels on Premier Oil’s Catcher and field development on Shell’s Penguins and Alpha’s Cheviot. Hurricane’s Lancaster field is also expecting first oil early in 2019. Further field developments are opening the frontier to the West of Shetland. These can be viewed as clear signs that costs have come down on new build projects and reserves are beginning to be unlocked.
Later in the year came the exceptional news of first oil from the BP Clair Ridge mega-project, which represents almost a decade of sustained, technology-led efforts and a £5 billion investment with partners Shell, Conoco Phillips and Chevron. Although discovered four-decades ago, the harsh sea conditions West of Shetland and complex geology were only overcome with modern technology and techniques.
Looking ahead with our Industry Outlook 2019 in mind, we’re gathering fresh views from oil and gas professionals. We know that almost a fifth of our previous survey respondents cited a lack of investment in innovation as a key barrier to growth, but that they had a pipeline of research and development projects to sanction over the last 12 months. We look forward to further discussions on the innovations that have become a reality.
In 2019, DNV GL anticipates three strains of work to continue to take place in the North Sea – backlog activity, modifications and upgrades, and new developments. Excellent progress has been made, but we anticipate a continued higher oil price to make modifications and upgrades to existing fields more attractive. Meanwhile, the continued drive to bring new projects to production stage is exciting and necessary for the long-term.
We expect the digitalization strategies of companies to come through more noticeably over the next 12 months, as faster, more agile oil and gas production techniques demand these to be truly effective. We should all be preparing for a 2019 that is even more dynamic than the positive 2018 we have just had. It will be a happy new year, but it will take ingenuity and effort as always.
Hari Vamadevan, senior VP and regional manager for UK & West Africa, DNV GL – Oil & Gas
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