December 12, 2016
Authors: Olga Kerimova, Senior Analyst, and Veronika Akuliniseva, Analyst, Rystad Energy
Publisher: PESGB Newsletter, December Edition
In 2016, we have witnessed a continued market downturn with oil prices trending below 50 $/bbl, ongoing investment cuts, resulting in production decline in many regions of the world. Yet, some countries still managed to increase output in a battle to protect their market share. This article explains the key industry topics from this year, highlighting short-term supply and demand growth, exploration success and spending trends.
Liquids demand grew by ~1.8 million bbl/d in 2015 (compared to only 0.8 million bbl/d in 2014), while the demand growth is expected to be around 1.2 million bbl/d this year. On the supply side, almost 2.3 million bbl/d of new liquids production was added to the market in 2015. In 2016, the liquids supply is estimated to be flat year-over-year. The United States, Nigeria and China are key contributors to the negative supply additions, with combined liquids production from these countries expected to fall by over 1 million bbl/d. On the other hand, Iran, Iraq and Saudi Arabia are expected to be the countries that will contribute most to the liquids supply growth this year. For Iran, the lifting of sanctions is estimated to give an additional supply of almost 0.7 million bbl/d year-over-year, with largest contributions from the Ahwaz Asmari, Marun and North Azadegan fields. Saudi Arabia’s liquids production is estimated to grow by 0.3 million bbl/d in 2016. Similarly, Iraq continues the growth in 2016, albeit at a slower pace when compared to 2015. In 2017, Rystad Energy estimates that the liquids supply will grow around 1.1 million bbl/d. This is lower than the estimated total demand growth of 1.3 million bbl/d forecasted by IEA. Production from Iran, Nigeria and Libya is expected to grow by 720 kbbl/d next year. The rest of the growth is expected to come from Iraq, UAE and Saudi Arabia. However, if the OPEC countries deliver on the production targets communicated in Algeria in September 2016, the OPEC growth might only be 100 kbbl/d in 2017. If this happens, there will be almost zero growth in the liquids supply next year.
Figure 2 shows global discovered offshore volumes split by country. Historically, South America and Africa have been the continents with the largest discoveries. Brazil has been dominated by the large pre-salt discoveries, while Africa’s resources have been mainly from gas discoveries in Mozambique and Tanzania. In the period from 2008 to 2012, 20 billion boe was discovered on average, per year. For 2013-2016 that number was reduced to 7.3 billion boe. As of November 2016, the total discovered offshore resources for 2016 are estimated at 3.4 billion boe, consisting of around 60% gas. Around 65% of offshore resources discovered in 2016 year-to-date were in Africa, located in Angola, Senegal and Egypt, followed by the United States and Norway. The BP-operated Katambi discovery offshore Angola was the largest discovery this year, accounting for 25% of total offshore discovered volumes. Kosmos Energy made two significant discoveries in Senegal: Ahmeyim in January 2016, and Teranga in May. In October 2016, Caelus Energy made a large Smith Bay discovery on the North Slope of Alaska. In late October, ExxonMobil reported a successful Owowo-3 well extending the Owowo West field discovered offshore Nigeria in 2012.
Figure 3 shows global E&P investments from 2010 to 2020, split by the top contributing countries. Rystad Energy’s forecast as of December 2015 is also depicted on the chart. Total investments have been growing steadily until 2014, reaching almost $900 billion. As a consequence of the rapidly falling oil price that followed, E&P companies had to reevaluate their budgeting decisions for the years to come. As a result, upstream expenditures fell by 25% in 2015 and a similar trend continued into 2016 as well.
Rystad Energy now believes investments this year will end up at a $520 billion level, 14% lower than anticipated in December last year. Among the most affected countries are the United States and Canada, which are estimated to decline by 40% and 33% respectively this year. The decline in these countries is very much driven by the shale segment, where cuts in drilling activity and overall level of well costs have been significant. Further, as a result of postponement of big discoveries, expenditures in Australia are anticipated to decrease by 45% in 2016, 16% more than previously forecasted. Significant cuts are also expected in Brazil, China and Norway. Due to the prolonged low oil price environment, total E&P investments are not expected to show an increasing trend next year either. Rystad Energy currently forecasts that following a gradually increasing oil prices in the short-term, investments will start showing an upward trend again from 2018 onwards. The growth will, however, be slower than previously forecasted, and thus total E&P expenditures will not return to the level of 2014 within the next four years.
2016 has been a difficult year for the E&P industry. Characterized by continued downturn, global liquids supply this year is forecasted to remain flat, while total E&P investments are expected to fall by another 25% from last year’s level, down to barely $520 billion. On the bright side, demand growth this year has been higher than supply, which is anticipated to continue into 2017 as well. Thus Rystad Energy forecasts a tightening of the market already next year, followed by a gradual recovery in oil prices.
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Contact: Olga Kerimova, Analyst
Phone: +47 24 00 42 00
Contact: Veronika Akulinitseva, Analyst
Phone: +47 24 00 42 00
About Rystad Energy
Rystad Energy is an independent oil and gas consulting services and business intelligence data firm offering global databases, strategy consulting and research products.
Rystad Energy’s headquarters are located in Oslo, Norway. Further presence has been established in Norway (Stavanger), the UK (London), USA (New York & Houston), Russia (Moscow), Brazil (Rio de Janeiro), as well as Singapore and Dubai.