For the last few years, we have produced forecasts of worldwide oil&gas production and expenditure for Scottish Enterprise’s Energy Team in Aberdeen for its regular Spends and Trends series of reports, which I believe provide a valuable market-research tool for the supply chain.
We have just completed the latest series of eight reports, covering all the main offshore regions in the world except the UKCS. There are some surprising results.
Our estimate is that total expenditure by the worldwide offshore industry in 2008 was about $205billion. The UKCS share of that was 10% and the Norwegian share 14%.
In 2008, offshore accounted for 38% of total world oil production and offshore gas 29%. Those proportions have risen slowly but steadily over the last decade.
The underlying reason for that trend is that easy-to-find onshore reserves were developed first – for example, in the US and Middle East.
As those reserves were depleted, attention turned to less obvious onshore reserves and then, eventually, offshore prospects such as those of the North Sea and US Gulf of Mexico, both of which are mature and declining.
Nevertheless, offshore’s share of total output continues to rise.
The biggest growing offshore market over the next few years will be West Africa, followed by Asia-Pacific, Caspian and the Mediterranean.
There have been some tremendous discoveries off West Africa, notably Angola and Nigeria, but also off smaller countries such as Ghana.
Activity there is currently three to four years behind what was generally predicted a few years ago, but that means there is a substantial backlog of projects to be developed over the next few years.
Asia-Pacific is now the largest offshore market, accounting for about 23% of total expenditure. It seems certain that share will rise further.
However, there will be faster growth rates in the Caspian Sea and Mediterranean, which are two markets which Scottish-based companies often ignore, but should not.
The Kashagan development, for example, in the Caspian is currently one of the biggest in the world, and there are many other prospects there. The region’s gas industry will expand substantially if/when the proposed Nabucco pipeline or alternatives go ahead in the near future.
There are also a surprisingly large number of mostly gas developments and prospects in the Med, notably offshore Egypt, Libya and Tunisia.
World oil prices have fluctuated massively over the past year, but are currently in the $70-75 range. Compare this with $30 just a few years ago.
The obvious conclusion – even for non-economists – is that more offshore fields are viable now than they were when they were discovered in the past, even allowing for cost inflation.
Companies have to take long-term views on oil prices, of course, but my colleagues in Saudi Arabia increasingly believe that we will have a long period of relative stability, with a floor of no less than $60. That should deliver a substantial boost offshore.
Turning to gas, it is clearly an increasingly important resource.
However, many offshore gas discoveries have been made where there were no domestic markets for gas, notably in Asia-Pacific and West Africa.
While some local markets are being developed, mainly as power-generation fuel, it is the growth of LNG (liquefied natural gas) that is now giving the greatest boost offshore.
Moreover, the advent of floating LNG (FLNG) facilities will enable the development of even more stranded gas reserves.
I believe, therefore, that the next few years will be very good for the offshore industry in Scotland, including its supply chain, despite the continuing decline in the North Sea.
Local companies’ success in overseas markets has been much better than I expected.
However, the geography of the offshore market is changing significantly and it would be unwise to ignore countries such as Ghana, Egypt, Azerbaijan – and Libya, which has been in the news recently for other reasons.
Tony Mackay is MD of economists Mackay Consultants
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