Total spending for upstream oil & gas will hit nearly $1.3 trillion this year, led by a robust North American market, according to a new report by IHS.
Driven by strong oil prices and the North American unconventional gas boom, global upstream capital and operating expenses will increase year on year to more than $1.6 trillion in 2016, IHS forecasts in its latest Upstream Spending Report. This year, capital expenditures for new projects will reach a record $728 billion and operational expenses for existing projects will reach $500 billion, the information provider said.
While onshore capital expenditure outweighs offshore, offshore spending will increase at a faster pace than onshore capex over the next few years, growing by 58% from 2011 through 2016 compared to a 39% rise in onshore spending over the same period, IHS said. Offshore capex this year is estimated to reach $213 billion and rise to $297 billion in 2016.
Total operational expenditure will rise to $671 billion in 2016 as new fields come on stream and the costs per unit of oil & gas production rise, according to the quarterly report.
IHS projects spending increases throughout all regions, due to increased activity as robust oil prices and gas prices outside the North American market remain well above breakeven levels for most proposed oil and gas projects.
Breaking it down by region, North America leads the pack in 2012 with projected capex of $274 billion, driven by unconventional production, which is expected to reach $128 billion this year. Including opex, North America upstream spending will total $392 billion in 2012 and is forecast to rise to $528 billion in 2016.
Asia-Pacific follows with a total $238 billion in upstream spending: $169 billion in capex and $69 billion in opex. The region currently has the highest offshore spending of any region at $104 billion, including $67 billion in capex. Projects offshore Australia will contribute to the region's capex growth, which is expected to represent 31% of global oil & gas capex by 2016.
According to IHS, offshore activities, including new developments in east Africa and the western Gulf of Guinea, will also drive a 62% increase in spending in Africa from 2011 to 2016. Latin America, led by field development and exploration offshore Brazil, will see a total spend of $230 billion in 2012 and in terms of upstream capex is expected to be the second largest offshore region after Asia-Pacific through 2012-16.
IHS sees strong growth in the Middle East, with capex expected to rise nearly 80% from 2011 to 2016, compared to a global growth rate of 45%. Drilling in Saudi Arabia and Iraq will account for much of the increase.
Recent discoveries off Norway and the completion of regional pipeline projects will help boost capex in Europe from $45 billion in 2011 to $57 billion in 2016, the report said. Global spending for pipeline projects will reach $12 billion in 2012, on par with 2008 levels, which took a dive after Macondo and the 2008/09 economic downturn.
In other findings, IHS said spending on LNG engineering services will grow 183% over five years and that total oil & gas industry equipment capex will reach $50 billion this year, nearly half of which will feed demand for rotating equipment.
The brief lull in expenditures in 2009 and 2010 caused by the recession is behind us, said IHS chief energy strategist David Hobbs. Robust oil prices and the growth of North American unconventional gas which already accounts for $128 billion in 2012 spending will create new high water marks for investment in capex and opex that surpass pre-recession highs. Understanding where spending is headed will be critical for both buyers and sellers in the supply chain to meet market needs. RM
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