Welcome to our February edition of the Supply Chain Newsletter

The world is undergoing a significant change in the energy mix to replace a large part of the energy that is currently supplied by fossil fuels. This has impacted investments in the oil and gas sector, while boosting investments in renewable energy and its share in the global energy mix. Future purchases and growth within the energy supply chain will largely be led by the renewables sector and emerging services such as carbon, capture and storage (CCS). Service providers with operations in engineering, procurement and construction (EPC), equipment suppliers focusing on surface facilities, and operations and maintenance (O&M) companies will be able to tap into this growth as they will find it easy to deploy their competence towards the green shift. In a similar manner, EPC subsea companies will play an important role providing services to the offshore wind sector. The energy transition will be more challenging for well-related services such as rigs and well services, even though geothermal energy, a potential consumer of these services, is gaining momentum around the world.

Thank you for reading.

Binny

Binny Bagga
Vice President
Energy Service Research

A world of opportunities in the low-carbon supply chain

Rystad Energy Press Releases

• Hydropower floodgates opening: 2022 investments set to soar and drive global capacity to above 1,200 GW >> Read more

• Super-sized offshore wind installations could suffer bottlenecks from 2024 as vessels remain lightweight >> Read more

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

• OffshoreWindCube 
Historical and upcoming wind projects analysis, time series for capacity, turbines, foundations, cables, offshore substations, and expenditures >> Learn more

• Offshore Wind Analytics
Complete overview of the global offshore wind market  >> Learn more

• Cost DynamiX 
Cost and price intelligence through analytics, data, and advisory services focusing on benchmarking, estimating, and inflation.  
>> Learn more

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

• LandRigCube
(Land Rig Supply & Demand Database) Rig by rig data with technical specifications and locations  >> Learn more

 • Land Rig Analytics
Market intelligence on the land rig market through in-depth reports and commentaries  >> Learn more

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

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

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

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Renewable energy suppliers' revenue has been growing continuously since 2014 as the energy transition continues to gain ground, with 2022 set to be another year of rising revenue for the top players. This comes along with an increase in investments and a growing share of renewables in the global energy mix. It will be impossible for this transformation to take place without a robust supply chain. Service companies with greater exposure to renewables and emerging sectors are set to benefit from the growth of CCS, hydrogen, wind, and solar PV. In this article, Rystad Energy provides a global outlook for the investments required across the various energy supply chains.

Global energy investments totaled more than $1 trillion in 2019, with the oil and gas sector accounting for three-quarters of the spending. This dominance is set to decline: Between 2019 and 2023, all the growth in investments will come from other sectors. The share of oil and gas spending will drop to 62% in 2023 as sliding oil demand weakens upstream companies’ appetite for new exploration and development projects. Oil investments and spending on midstream and downstream are expected to decline by a compound annual growth rate (CAGR) of 5% from 2019 to 2023. Although investment in new field developments is still necessary to fulfil oil demand over the next decade, the pace will slow down and will not match levels seen in the past. Gas and LNG investment is expected to remain unchanged.

Investments in the renewables sector is dominated by solar and onshore wind – accounting for 72% of renewable energy investments in 2019 at $158 billion. Both segments are set for strong growth. Onshore wind investments are expected to grow by 11% per year in the 2019-2023 period, while solar expenditures will grow even faster with a CAGR of 13%. Investments in offshore wind will expand with a CAGR of 16% and will account for 12% of all renewables investments in 2023. The spending surge in offshore wind is spurred by more cost-competitive technologies that will support project economics, as well as more countries opening vast offshore locations for wind turbines.

Investments in geothermal energy will also see a double-digit growth rate between 2019 and 2023, though at much smaller volumes than the other renewable energy sources. Among other emerging energy sectors, CCS and hydrogen will have the strongest growth from 2019 to 2023 with CAGR of 76% and 91%, respectively. CCS and hydrogen will play an important part in the energy transition and are likely to require investments of more than $100 billion combined in 2030. Both green and blue hydrogen projects are growing in popularity. The number of proposed green hydrogen projects is surging globally due to governments’ post-pandemic green stimulus packages. 

Oil and gas investments are not expected to return to 2019 levels over the next decade. The Covid-19 pandemic caused major blows to the oil and gas industry, with investments dropping from $790 billion in 2019 to about $590 billion in 2020. The outlook varies between petroleum segments. Natural gas and liquefied natural gas (LNG) are spared from the decline as regions see more demand for LNG, commonly touted as a cleaner and more low-carbon fuel than oil and coal. We expect onshore gas and LNG to grow at a CAGR of 2% and offshore gas to expand at 3% CAGR in the period to 2030.

Shale was the hardest-hit segment in 2020, with year-on-year investments almost halving from 2019. The sector is set for a gradual recovery in the coming years; however, investments will not see a comeback to 2019 levels this decade. The midstream and downstream markets are likely to be affected the most, as spending shifts from greenfield to brownfield with the approach of peak oil demand.

Service purchases include both capital and operational expenditures, but exclude internal costs incurred by the buyer. Nuclear and hydropower purchases are not covered in Figure 3. For each of the major five service segments, we have calculated the likely compound annual growth rates from 2019 to 2023 to see which segments are likely to prove the most resilient.

Engineering, procurement and construction (EPC) of surface facilities is the largest sector in terms of purchases, with a diverse exposure to upstream, midstream and downstream oil and gas as well as renewables and emerging services. EPC players, equipment suppliers focusing on surface facilities, and operation and maintenance (O&M) companies are in a good position to benefit from higher spending. Surface-focused EPC players are likely to see their market increase by a CAGR of 4% between 2019 and 2023, to $483 billion. O&M companies will likely see a CAGR of 3%, growing to $261 billion. The relatively small subsea EPC market is expected to grow at a comparable pace due to the demand for subsea equipment, pipelines and power cables related to cost-efficient deepwater oil and gas developments, offshore wind cables, and power interconnectors.

Despite strong growth, geothermal spending will not be large enough to expand the overall market for well and seismic companies, as the much more well-intensive oil market will require fewer wells to be drilled over the coming decade. Service purchases for wells & seismic will come almost entirely from the upstream oil and gas sector. Demand for drilling rigs tends to follow the same path as well-service purchases, while in the offshore vessel market there will be a rising need for cable layers and turbine installation vessels within offshore wind, providing growth within this segment.