The energy transition takes and gives to the global service industry

Rystad Energy Webinars

COVID-19 Webinar: COVID-19 December Update and Market Outlook
Content Webinar
December 17, 2020

Rystad Energy Press Releases

• Offshore helicopter traffic plunged by 15% due to the pandemic but is set to recover from 2021. >> Read here

• Oilfield service purchases set to lose $340 billion until 2028 as peak oil is closer than ever. >> Read here

Rystad Energy Supply Chain Solutions Highlights 

• ServiceCube (Oilfield Service Databases) Cost and oilfield service market analysis with global field-by-field and contract-by-contract coverage >> Learn more

• Service Analytics
 Expert analysis and insights into global service market >> Learn more

• RigCube (Rig Supply & Demand Database) Insights into historical and forecasted global rig supply and demand >> Learn more

• Rig Analytics 
Expert analysis, reports and insights into the offshore rig market >> Learn more

• WellCube (Global Well Database) 
Global coverage of wells drilled with detailed well characteristics, built field-by-field >> Learn more

• Well Analytics 
Expert analysis of the global drilling and completion activity >> Learn more

• SubseaCube 
Bottom-up, field-by-field coverage on subsea structures and components >> Learn more

• Subsea Analytics 
Expert analysis of the global subsea market  >> Learn more

• Regional Service Analytics 
Expert reports and insights on regional oilfield service industry >> Learn more

• Cost Service Analytics 
Comprehensive global project cost toolkit created to help you understand, analyze, and estimate project costs >> Learn more

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COVID-19 Report

Rystad Energy's COVID-19 Report will be regularly updated, offering scenario analyses and evaluating the impact on global energy markets. The report is available for download on our webpages, and we also offer webinars for further analyses. >> Access here

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     A global economy ravaged by the Covid-19 pandemic has accelerated the energy transition. With oil demand now expected by Rystad Energy to peak at only 102 million barrels per day, and with that anticipated to happen as early as 2028, we have reduced our medium to long-term outlook for oilfield service purchases. The oilfield service market is not expected to recover to 2019 levels of investment in real terms anytime this decade, and even in nominal terms the recovery is likely to be delayed by another two years to 2025. However, as the energy transition continues to eat away at the outlook for oilfield services, the greener energy services market is growing in size, opening opportunities in areas such as hydrogen and marine minerals.

The pandemic is likely to cause 2020 oil demand to drop to 89.3 million barrels per day (bpd) from 99.6 million bpd in 2019. Demand is then poised to recover to 94.8 million bpd in 2021, still capped by regional lockdowns and sluggish recovery of international aviation as airlines continue to operate far below pre-virus levels. Oil demand is expected to inch its way up to 98.4 million bpd in 2022, still impaired by structural impacts related to the coronavirus such as less work commuting and lingering aviation issues. We only forecast demand to get back to pre-Covid levels in 2023, reaching an estimated 100.1 million bpd. The energy transition is accelerating and also weighs on our peak oil demand revision. All sectors contribute to the transition, but transport (60% of oil demand) will be the ultimate driver of this shift. By 2025, plug-in-hybrid and battery electric vehicles (EVs) are expected to have a 14% market share within new passenger vehicle sales, before surging further to 80% by 2050. 

Oil demand is expected to enter a plateau phase at around 102 million bpd between 2025 and 2030, and we now expect a real Brent oil price of $55 per barrel from 2025 onwards. The impact of this is that global greenfield oil and gas sanctioning will be reduced. The annual average of sanctioning activity now lies between $80 billion and $100 billion for offshore, and between $40 billion and $60 billion for onshore. This is a reminder that greenfield projects are losing popularity and are likely to find it harder to compete in E&P companies’ prioritized portfolios in the future. 

With a lower need and willingness among E&P companies to invest in oil and gas, capital expenditure across offshore, shale and conventional onshore resources will probably struggle to return to 2019 levels. In nominal terms, offshore investment levels are projected to rebound to 2019 levels in 2023, with conventional onshore following suit in 2025 and shale in 2028. In real terms, however, investments in upstream oil and gas may never make it back to 2019 levels, and service purchases are trading the same way. Even when including operational budgets in the oilfield service market, there is little reason to expect a return to 2019 levels anytime soon. In real terms, this is not likely to happen at all this decade, whereas in nominal terms it could be achieved by 2025 (versus our estimate of 2023 just one month ago). The service market is now estimated to grow at a compound annual rate of 7.9% from 2020 to 2025.

While the outlook for the traditional oilfield service market is weakening, suppliers to the wider energy market are seeing a corresponding growth in new sectors. Carbon capture and storage, wind, solar, geothermal, batteries, hydrogen and marine minerals are all opening up exciting new frontiers for the service industry.

As governments launch post-pandemic green stimulus packages, the number of proposed green hydrogen projects is surging across the globe. Research conducted by Rystad Energy suggests that the global pipeline of utility-scale green hydrogen electrolyzer developments (projects with capacity greater than 1 megawatt), now exceeds 60 gigawatts (GW), with 87% of the capacity coming from gigawatt-scale installations. From 2020 to 2023, 18 green hydrogen projects are expected to start per year. Blue hydrogen projects are also growing in popularity, with several mega-projects being discussed at present. Carbon capture and storage would be a big enabler for these projects by creating low-carbon hydrogen infrastructure, which in Europe alone would be a $35 billion market by 2035. As much as $400 billion worth of investments would need to be deployed into the hydrogen market to realize the desired output. About half of this spending, or $200 billion, would go into the engineering and construction sector to develop the electrolyzers and related facilities, while 40% would be spent on developing hydrogen infrastructure including pipelines and storage. 

Marine minerals are gaining attention as the global mineral demand increases and the offshore oil and gas industry explores expanding into greener markets. With an increase in electric vehicles, wind farms, solar projects and growing power grids, Rystad Energy expects that the marine mineral industry could be worth $10 billion to $40 billion by 2035. For the offshore supplier industry, marine minerals exploration and excavation could be a significant growth market. Offshore mining would require seismic and geoscience services in the exploration phase and investments of around $1 billion in excavation facilities. A typical development solution for deeper-water marine minerals would comprise of a floating excavation unit, similar to an FPSO, to host the equipment and store minerals, combined with a subsea excavator unit to break up the minerals and bring it up to deck.