Douglas-Westwood (DW) forecasts deepwater expenditure to total US$137 billion from 2016-2020. This represents a 35% decline compared to DW’s previous edition of the deepwater forecast issued March 2015.
The prolonged low oil price has impacted the deepwater market, with operators considering alternative development options and delaying the sanctioning of new projects, while trying to protect returns on their existing investments in the sector. However, projects already under construction are unlikely to be affected. The largest proportion (38%) of the total spend will be attributed to drilling and completion. Subsea production equipment, SURF (subsea umbilicals, risers and flowlines), pipelines and trunklines will represent 34% of total expenditure combined; while floating production units will account for 28% of spend over the forecast period.
Expenditure will predominantly be driven by Africa and the Americas, which will account for a combined 87% of total deepwater capex. Though all regions will be adversely affected by low oil prices, projects that were sanctioned before the oil price downturn will help sustain activity levels in these regions and in addition DW expects to see the development of East African gas basins towards the end of the forecast period.
Record levels of backlog established over the 2011-2014 period have somewhat insulated subsea hardware manufacturers from the oil price downturn. However, DW expects a further decline in subsea hardware installations in 2017 and 2018 with backlog falling rapidly and new orders trickling in at very low levels. DW expects that the subsea OEM’s will feel the full impact of the downturn in 2016-17 and will face strong competition for the lower volume of projects. In total, it is forecast that the number of deepwater wells to be drilled over the next five years will decline by 3% compared to the preceding five-year period.
From a supply-chain perspective, this point in the cycle is an opportunity to bring through new approaches and technology for deepwater developments to improve efficiency and lower cost. In the long run, DW remains of the view that deepwater will be a cost competitive source of world-class hydrocarbon reserves.