Positive vaccination news to drive up awards in the oilfield service industry

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     The oilfield service market is expected to start recovering from one of the most dramatic and challenging years ever for the oil and gas industry this year itself, and will grow again from 2022. With E&P investments expected to stay flat at 0% while operational budgets climb 5% in 2021, service purchases are expected to grow 2%. We still expect contract awards to climb upwards on the back of the Covid-19 vaccination program roll-outs around the globe. 

The higher oil and gas prices at the moment, in early 2021, with brent reaching $60 per barrel, will impact the service market differently. Shale investments are likely to grow by 9% in 2021. The positive effect of higher oil prices is set to create a chain reaction in the US, where shale operators will see cash from operations (CFO) rise by about 30% in 2021, allowing them to increase activity spending this year. Offshore investments are likely to see a 1% drop as greenfield budgets shrink due to a record-low volume of sanctioned projects in 2020. For conventional onshore projects, investments are likely to decline 2% as overcapacity in many OPEC+ countries will limit the need for new investments. 

Service purchases in 2021 are likely to grow 2% – to $490 billion. The growth in shale investments will cause stimulation purchases of proppant and frack spreads to grow by 7% for the 10,100 horizontal wells that are forecast to be completed in 2021. This will also help drive up the global market for OCTG, completion and intervention services. OCTG demand is likely to grow from 12.26 million tonnes in 2020 to 12.45 million tonnes in 2021, causing prices to climb by around 5%. 

The offshore vessels market is poised to expand by around 6% this year, which could make it the fastest growing segment in the entire oilfield sector. Platform logistics, meanwhile, are expected to bounce back from a bleak 2020 – hampered by Covid-19 shutdowns and limited offshore MMO work – with projections of 5% growth this year. This will also help drive up the overall maintenance services by 4%. When it comes to weaker purchases, we expect the subsea market and the engineering, procurement, construction, and installation (EPCI) segment to continue to struggle in 2021. With a 65% drop in greenfield sanctioning last year, facility-driven purchases are likely to decline between 5% and 20%, depending on the service segment. 

Rystad Energy expects to see a year-on-year increase of nearly 40% in the sanctioning levels in 2021 with total commitments expected to cross $90 billion reflecting increases in both offshore and onshore commitments. The year 2020 closed with $65 billion worth of committed projects, with a couple of projects reaching the development stage in the last month of the year. Offshore commitments contributed nearly $45 billion making up more than 68% of the total commitments. Of the total offshore commitments, FPSO developments contributed more than 37%, the other major developments being fixed platforms and subsea tiebacks each contributing nearly 22% each. The onshore commitments for the year closed at nearly $20 billion. 

Rystad Energy estimates total commitments to reach $92 billion in 2021; with $57 billion worth of commitments coming from offshore developments while the remaining $35 billion coming from onshore developments. Fixed platforms and onshore LNG developments are set to drive sanctioning levels this year, together contributing over 55% of the total commitments. Only a handful of LNG developments from a long list of projects, which were delayed due to low oil price last year, are expected to receive the green light this year. Qatargas North Field Expansion project in Qatar was recently sanctioned, and next up can be the second phase of Pluto LNG in Australia and Jacksonville LNG in United States, with the rest likely to be sanctioned in 2022. The developments involving floaters contribute nearly 20% of the total project commitments with projects like Barossa in Australia, expansion of Liuhua 11-1 in China, and Buzios VI in Brazil holding a majority of these commitments. 

Although combined purchases will slightly grow in 2021, contract awards are set to improve. For the service sectors that are forecast to grow this year, our expectations of a 40% increase in sanctioning this year will ensure a growing backlog for long-lead items such as subsea and EPCI. Therefore, despite a likely decline in the subsea market in 2021, this could prove to be the market that sees the highest growth in inbound orders. We anticipate that as many as 200 subsea trees could be awarded this year, up from 123 in 2020, which would equate to more than 60% growth in awards. Another segment that could see large growth in orders is the FPSO industry, with up to 10 FPSO greenfield awards in 2021, compared to only three in 2020.