Oil investments rapidly approaching peak level from 2013

Already in 2020, Rystad Energy expects new investments in oil production to reach the level from 2013. "We are seeing the beginning of a new investment cycle," the company says. The North Sea is one of the areas in question.
Photo: /ritzau/Magnus Holm
Photo: /ritzau/Magnus Holm

Investments in global oil production are once again showing strong growth, reports Norwegian Rystad Energy.

As early as next year, offshore investments will reach the level from 2013, which, with total investments of USD 115 billion, was the strongest year in the last decade. Investments peaked at USD 144 billion in 2011 and then abruptly declined to USD 23 billion in 2016.

These figures only apply to entirely new oil production and thus do not include data on shale oil and output from OPEC member states. However, the figures do confirm that a paradigm shift has occurred and investor confidence has rebounded in force.

"We are seeing the beginning of a new investment cycle," assesses Rystad Energy Partner Markus Nævestad.

He recently participated in Marine Moneys London Forum, where he presented oil production market scenarios for both offshore and onshore and gave an impression of how large the demand for oil transport will be.

"Offshore is once again competitive. That applies to areas including the North Sea and Brazil," he added.

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The price of oil is one of the two factors that sets a project's break-even point and thus is completely decisive for whether or not energy companies and investors choose to invest capital in new projects. According to Nævestad, production costs have declined far enough along with the price of oil stabilizing at a point between USD 60 and USD 70 per barrel that the business case has again become viable.

Trump stealing the limelight again this year

There are still, however, a number of variables that can disturb the picture. On a overall level, the market is fluctuating considerably more now than a few years back due to factors such as US President Donald Trump, sanctions against Iran as well as OPEC's agreement to maintain a production cap – all of which impact the price. But for the time being, Rystad assesses that, towards 2023, the interval will be between USD 60 and USD 70 per barrel and will probably peak next year around USD 70.

Developments on the US market and shale oil production will be completely decisive for how the market will advance. If Rystad's expectations hold water, the US will in a matter of years have expanded oil production so much that it will correspond to one-and-a-half times that of Saudi Arabia. This could already take place in 2025 with rapidly inclining growth curve entailing around 20 million barrels per day, which tanker carriers, for one, will benefit from, as oil exports as well as production are also showing strong growth.

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Braemer ACM also supports the the latter development forecast. According to Global Head of Research Henry Curra, US exports will increase dramatically concurrent to the expansion of refinery capacity in countries such as China.

Curra, who also attended the Marine Money conference, agrees that there are factors that could shift development.

"In 2018, everything was about Trump. That will also be true in 2019," as he puts it.

New production record in sight

When it comes to production of oil – and gas – things are going the same way for investments. 14 days ago, the Norwegian Petroleum Directorate (NPD) projected that production levels could of oil and gas on the Norwegian Shelf could break the previous record from 2004, according to an NDP prognosis.

Oil and gas production will probably dip slightly in 2019 but will then increase again in the following years, approaching in 2023 the record level from 2004.

"The activity level on the Norwegian Shelf is high. Production forecasts for the next few years are promising and lay a foundation for substantial revenues, both for the companies and the Norwegian society," wrote NPD Director General Bente Nyland.

Looking at 2018, exploration activities were higher than the preceding years. A total of 83 new exploration licenses were granted for the Norwegian Shelf – and that is a new record.

English Edit: Daniel Frank Christensen

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