While the deepwater sector can expect a couple more years of pain, there is reason to be optimistic post-2020, according to Wood Mackenzie’s director of upstream supply chain consulting Dr Wei Liu
The upstream value chain can expect pain into early 2020 as a result of slowdowns in project sanctioning during 2015, 2016 and 2017. This is the view expressed by Wood Mackenzie’s Dr Liu to audience members at the 2019 Offshore Support Journal Subsea Conference in London today.
Longer-term, Dr Liu feels “cautiously optimistic”, especially when it comes to deepwater projects. “Deepwater is an integral part of the strategic development of the oil majors and national oil companies,” said Dr Liu.
The key factor affecting the offshore business over the past four years has been the development of unconventional resources in the US, he said. However, while unconventional production is due a couple more years of growth, it can be expected to plateau in the mid-2020s, with tight oil set to peak in key areas such as the Eagle Ford and Permian Basins and production expected to fall.
Oil companies hoping to retain production levels through the next decade are looking to deepwater projects as a way to remedy this.
“However, share prices fall when [producers] announce deepwater investment,” said Dr Liu, “because investors are most interested in the performance of companies in the short term.” He explained that unconventional projects, such as shale gas development, are preferred as they have quicker turnaround times and hence offer a faster return on investment.
“The only thing that is preventing a massive jump in deepwater investment is the payback period for the investment,” said Dr Liu. “But they cannot delay this forever because of production concerns.”
Looking at the subsea sector generally, Dr Liu noted that it is more resilient than the wider offshore sector and can expect speedier growth, both in terms of capex and activity. He noted that subsea capex started to recover in 2017 at a faster rate than that of the offshore sector as a whole and this is likely to continue. "The nature of the subsea market is to have a very short cycle when compared with the [asset-heavy] offshore industry. But we are not likely to see a return to the historic [capex] peaks [seen] in 2013 and 2014,” he said, adding: “More efficient project management has decreased capex in general, so we are looking at permanently lower market prospects for capex.”