The Norwegian independent energy research firm, Rystad Energy, has said that global project sanctioning is set for a staggering decline this year by over 75percent from 2019 levels with total sanctioning value expected to end up around $47 billion.
Of total global sanctioning value in 2020, Rystad Energy said some $27 billion is expected to be for offshore projects, while the remaining $20 billion for onshore. In 2019, the total sanctioning value reached $197 billion, with $109 billion going to offshore projects and $88 billion to onshore projects.
“At the beginning of this year, the project commitments forecast for 2020 were expected to be comparable to 2019, but the industry downturn thanks to Covid-19 has caused commitments to fall sharply,” says Karan Satwani, energy service analyst at Rystad Energy.
The spending estimates for the sector would have been even lower if not for the recent contract awards in Norway and Russia, the Rystad Energy report found.
So far this year, the projects that have been committed are worth a combined $29 billion, with $16 billion going to offshore and the remaining going to onshore. Rystad Energy’s forecast is based on a scenario in which Brent averages around $40 per barrel this year, not far from its current market price.
Brent crude prices dropped from highs of almost $69 per barrel in January to $19.33 by mid-march as demand buckled. However, prices recovered to more than $40 per barrel on the back of an Opec+ agreement to cut production by 9.7 million barrels per day, with tapering of supply in place until 2022.
Going forward, Rystad Energy estimates that sanctioning will not pick up again and recover to 2019 levels anytime soon.
According to the forecast, drilled wells are to partly recover, to just above 61,000 wells in 2021, as governments ease travel restrictions, boosting oil demand and prices. Then numbers are expected to grow further, to just above 65,000 wells in 2022, although they will remain below 69,000 wells until the end of 2025.
Rystad energy services analyst Reza Hassan Kazmi said: “Both new wells and drilling lengths will be pared down as E&P’S scale down investments, affecting the entire supply chain associated with these services.”
Before the coronavirus outbreak, Rystad Energy had expected that the total number of wells would rise to 74,575 year-on-year, of which 2,896 were offshore wells.
Drilling length, a driver for drilling tools, especially for drill pipes, drill collars, heavy- weight drill pipes, and drill bits, is also estimated to proportionally decrease by 25percent this year, before improving in 2021.
Rystad Energy expects that onshore and offshore purchases for drilling tools will drop from $16bn in 2019 to $10bn in 2020, with North America, Africa, and Russia being the biggest contributors to this loss, since purchases in these countries will drop between 27percent and 36percent this year.
Global investment in energy is expected to slump 20 per cent or nearly $400bn in 2020 due to the “staggering” impact of the Covid-19 pandemic on the industry, the International Energy Agency said in May.