The oil and gas industry has been rapidly investing in new projects over the past 18 months, with about US$110bn being approved for development since the beginning of 2017, as compared to US$50bn in 2016
In May 2018, there were three major approvals such as Total’s Zinia deepwater development off Angola, Cheniere’s LNG liquefaction Train 3 project at Corpus Christi, Texas and the Santos-led Arcadia coalbed methane project in Queensland, Australia, feeding the Gladstone LNG export facilities.
Recently, the Norwegian parliament approved the development of Equinor’s Johan Castberg field development project in the Barents Sea, which will potentially add more than US$40bn in revenues to the Norwegian economy during the course of its production life.
“Deepwater projects on either side of the Atlantic Ocean – from Norway to the US and from Angola to Brazil – are leading the charge towards new approvals. Higher oil prices, an improved outlook for gas demand and lower offshore development costs are driving this rebound in the industry,” Readul Islam, senior research analyst at Rystad Energy, explained.
Out of the 17 deepwater projects that have been approved over the past 18 months, as many as 16 had previously been in the development queue but were then put on hold during the industry down-cycle, as project margins were destroyed by low oil prices and high costs.
The 16 delayed deepwater projects that have attained FID so far will collectively develop around six billion boe and require investments totaling US$43.2bn to reach first production.
For instance, when the cost estimate hit US$20bn on BP’s initial Mad Dog 2 spar development, a US Gulf project that at the time involved 29 wells, its partners pressed the pause button. When FID was eventually reached last year, the plan had been scaled back to a semisub production unit with only 14 wells, carrying a much friendlier price tag of US$9bn.
According to Rystad Energy, while many delayed deepwater and onshore projects have been revitalised over the past 18 months, the same cannot be said of delayed oil sands and LNG projects. Only one project of each type was approved during 2017 – Christina Lake Phase G in Alberta and Coral FLNG in Mozambique – whereas Cheniere followed suit last month with the aforementioned approval of the third train at its Corpus Christi LNG plant.
Oil sands projects have tended to be mammoth affairs, requiring huge time and capital inputs. The oil sands service industry is not as specialised as the deepwater project supply chain. Deepwater drilling rigs, for instance, are built to perform one highly specific task – when oil prices collapsed rig owners could do little other than wait for the market to improve. In contrast, the oil sands supply chain shifted to other industries when the downturn started to bite in 2015, which in turn meant that oil sands projects have seen lower levels of cost compression than the overall E&P industry.
