An oil price below US$70/bbl will not be sustainable long term, according to Norwegian energy analysts Rystad Energy.
Speaking at the firm’s offices in Oslo, senior analyst Audun Martinsen outlined how the firm sees current global liquids production trends and the impact these trends will have on the oil price.
Current spending cuts by the oil majors, in the wake of the low oil price, will not have any significant impact on production rates in the offshore sector until 2018. But, as shale and tight oil starts to decline from a peak in 2018/19, new deepwater production will fill the void into the 2020s, says Martinsen.
Onshore shale production will fall off in about 2016, increasing again in 2017-18, but then falling again thru 2025, with little significant new shale production coming online from outside the US before that date. Onshore conventional production will decline constantly from 2014-2025, despite increases from Iraq, Libya and Iran, among others, Martinsen says, speaking to OE.
Meanwhile, after falling gradually in 2010-2014, then halving in 2015, investment spending should see some growth again in 2016, increasing strongly in 2017 and increasing year-on-year thru 2020. “We will see slight investment in 2016, and a return to normal in 2017, but after that the oil price will need to increase [to enable future spending],” Martinsen says.
“Long-term, towards 2025, what is really going to save us is offshore and mostly deepwater and ultra-deepwater,” Martinsen says.
Rystad had predicted there was a risk of oversupply in the market, particularly from US shale resources, back in June 2014, says Martinsen. The firm then revised their expectations of the oversupply upwards the following month.
Rystad expects global oil production to grow in 2015, by 500,000 bbl/d, driven by the US shale and new deepwater projects coming online, which will offset from natural declines in conventional production. This will keep oil prices depressed. According to Rystad, demand will catch up with supply in 2016, helping to increase oil prices, which, at below $70/bbl, would not be able to keep up with demand.
For the oilfield services and commodities sector, the hardest hit segment in the current spending cuts will be in well services. Well services and commodities spending is expected to drop 20% in 2015, compared to an average 15% cut across the segments. “Subsea is the best market to be in for the rest of the decade,” says Martinsen, due to the segment being less impacted than others in 2015, and predicted to return to growth in 2016. A similar trend will be seen in maintenance services, which is seen as a harder area to cut.
For the rig market to return to health – to become a “balanced market” – some 50-80 older units will need to be scrapped, says Martinsen.
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