Although the recent COP26 conference in the UK sent strong signals as to where the oilfield service industry must head by 2050, many suppliers and procurement departments are now showing increased concern over what lies ahead for next year as the Covid-19 pandemic will continue to have large ramifications on market development over the next 12 months. Many large energy projects – across oil, gas, carbon capture and storage (CCS), hydrogen and wind – have already suffered significant delays as a result of social distancing measures and supply chain bottlenecks caused by the pandemic. Further delays are likely as many countries are tackling new outbreaks of the virus, particularly of the new Omicron variant. The large rise in material prices in 2021 is also likely to persist next year, pointing towards likely further significant cost increases for energy projects that will force developers into rethinking project timelines. The spread of the Omicron variant could, temporarily at least, wipe out 3 million barrels per day of oil demand and limit the growth of energy investments in the first and second quarters of next year. It is likely, however, that suppliers will not face other setbacks on the same scale, meaning next year should present better market conditions that those seen in 2020 and 2021.

Audun Martinsen
Partner and Head of
Energy Service Research

What can the oilfield service expect after COP26?

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The Glasgow Climate Pact agreed between governments at the recent COP26 conference in Scotland will accelerate the energy transition from fossil fuels to cleaner sources of energy. With participants tasked with plotting a course for the limiting of global temperature rises to no more than 1.5 degrees Celsius (°C) above pre-industrial levels, a level just above this appears could be achievable, although we are currently tracking higher given current conditions. In this article, Rystad Energy examines how an accelerated transition to cleaner fuel sources could impact the oil and gas suppliers. 

Using Rystad Energy’s own data-driven forecasts for energy supply, we conclude that a rise of 1.6°C versus pre-industrial levels can still be a likely trajectory for global temperatures, although at present we are heading towards a larger increase. In light of all possible outcomes, Rystad Energy has further analyzed the impact this would have on the global oilfield service and a 1.6-degree scenario still represents a descent level of oilfield service purchases out to 2030.

Breaking down oilfield service purchases into offshore, shale and other onshore activities reveals that the shale service market – currently dominated by North America and also set to be so out to 2050 – will be the most sensitive to various climate scenarios. It could triple in size out to 2050 from a current $100 billion in a 2.0-degree scenario, or reduce to 40% by the middle of the century in a 1.6-degree scenario. The main reason for the major spread is how North American shale sits on the global supply curve – and its high level of cost elasticity.

The offshore sector, by comparison, has less of a spread in possible outcomes. This is because capital programs in offshore differ greatly from those in shale, as the sector has longer lead times, is more operating expenditure intensive, and volumes have lower decline rates.

As for onshore activity outside of North America, which comprises predominantly conventional activity, even in a 2.0-degree scenario, the value of service purchases stops growing from the 2030s. This is driven by mature basins, such as onshore Asia, Russia and Latin America, where natural decline is too expensive to arrest versus the costs required to bring new volumes from offshore and shale resources online.

Looking deeper into what type of fields are likely to developed – whether they be oil or gas, involve subsea, floating or grounded offshore facilities, be they conventional or unconventional projects – makes it possible to analyse how various service segments will develop in different scenarios. For each of the major five service segments in oilfield services, we can compute the likely compound annual growth rates in the next three decades to see which segments are likely to prove the most resilient.

Between 2020 and 2030, the subsea product lines are the one that are likely to fare best, potentially even posting growth in a 1.6-degree scenario. With the major deepwater successes in Brazil and Guyana, subsea equipment and SURF will see major demand growth as these growing oil economies are heavily dependent on their fossil fuel resources in the current decade. The maintenance, modifications and operations (MMO) and engineering, procurement, construction and installation (EPCI) sectors are where we expect growth to occur in all three climate scenarios – 1.6°C, 1.8°C and 2.0°C – in this decade as we see greenfield projects being prioritized by exploration and production operators in the next five years. By contrast, we see larger downside for well-related product lines such as drilling and well services. In a 1.6-degree scenario, the drilling sector could decline between 2% and 4% per annum over the next decade, but in a 1.8-degree scenario it could post flat or slightly positive growth. Well services are likely to see a slightly higher upside due to higher potential for stimulation services led by shale.

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