Subsea O&G Spend
The buoyant subsea oil and gas industry is about to enter a new period of growth with global revenue estimated to rise by a third from $35 billion a year to $45 billion by 2012.
Over the past five years oil demand -- particularly from China - and supply restrictions have pushed up oil prices and sustained them at high levels. In some countries, such as the UK and the U.S., depleting gas reserves have resulted in local supply shortage and increased gas prices. The effect of both has led to raised international concerns over security of hydrocarbons supplies. These factors have resulted in a boom in offshore oil & gas activity, demand for technology and services and unprecedented prices. The technical and commercial challenges that lie ahead are huge, but the opportunities for Scotland's subsea companies have never been better. As offshore production in the world's mature basins decline attention has been increasingly focused on deepwater and its enabling technology of subsea production. In addition, subsea wells tied back to existing infrastructure often offer a cost-effective solution to accessing the considerable reserves of the hundreds of small field prospects in mature areas such as the North Sea. In 1975, Scotland's Argyle field led the world by producing its first offshore oil from subsea wells connected to a floating production system. From these beginnings Scottish companies have developed a world-leading position in technology supply and operations and are now major suppliers to world markets. More recently, in 2007, the United Kingdom Continental Shelf (UKCS) subsea market stood at over $2.1 billion with over $11 billion of planned investment over the 2008-2012 period. Around 34% of this planned investment will be directed towards new drilling and completions with 55% going on pipelines and associated infrastructure - driven by the development of the Langaled pipeline from Sleipner to Easington. Much of the new drilling activity, however, is occurring outside the traditional North Sea region, such as EnCore Oil's development of the Schull gas field off the West of Ireland. One of the key factors that has allowed the British subsea industry to continue to develop for over 30 years is the
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introduction of new technologies. Today a number of new technologies are beginning to shape the subsea industry such as subsea boosting techniques aimed at increasing the productivity of subsea wells and subsea separation aimed at increasing the quantity of recoverable reserves from a subsea well. Statoil pioneered separation technology on its Tordis development which was successfully completed in 2007. The most recent 'game-changing' technology in the industry has been the introduction of subsea compression technologies aimed at reducing both capital and operational expenditure by curtailing the need for expensive topside infrastructure; such innovations would make formally marginal assets economically viable. In 2007, the global subsea market was valued at $35 billion. Douglas-Westwood expect that increasing energy demand coupled with high oil price and the move to deeper waters will drive subsea activity over our five year forecast, with an estimated $218 billion to be spent over the 2008-2012 period. The subsea oil & gas market is in the midst of strong growth both in terms of new developments and increasing costs of non-pipeline components. Overall growth is driven primarily by drilling and completion activity which in 2007 stood at $11.1 billion - 32% of the total market. We expect that over the forecast period the drilling market will plateau at around the $15.5 billion mark. The market for associated equipment such as subsea trees, manifolds and subsea controls will also witness a sustained period of high expenditure over the forecast period. However, the largest single contributor to the global subsea market will be pipelines - which will account for 50% of the global market over the 2008-2012 period. In the main, this market will be dominated by new trunk-lines and export lines linking producer countries with consumers in Europe and Asia. Expenditure in the pipeline market will not just be driven by the quantity of pipe but also by vessel constraints that will push the cost and lead times for major projects, causing peaks and troughs such as those forecast
April 2008
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