Archives for posts with tag: natural gas

OIMT201405Russia is forecast to account for 13% of world crude oil production and 18% of world natural gas production in 2014. While its prodigious Siberian flows tend to receive most of the credit for this feat, fields located off the country’s 16 million km of coastline are nonetheless projected to produce 390,000 bpd oil and 2.64 bcfd gas in 2014. So where exactly is Russian offshore production to be found? And what is the outlook?

Mastering the Arctic

As the Graph of the Month shows, offshore oil and gas production in Baltic & Arctic Russia stagnated after the break-up of the USSR, declining to 0.03m boepd in 2013, when it accounted for 4% of Russian offshore production. This trend was thrown into reverse when the Prirazlomnoye field came onstream in December 2013. Located 23km from shore in the Pechora Sea, the field is exploited via a ice-class platform and production is scheduled to reach 120,000 bpd by 2019. New technologies and robust oil prices are thus unlocking reserves hitherto stranded, and by 2023 Arctic oil and gas is forecast to constitute 11% of Russia’s offshore production.

Caspian and Crimean Conquests

Russia’s southern offshore fields, mainly in the Caspian, accounted for 9% of Russian offshore production in 2013. In the Caspian, as in the Arctic, harsh conditions have limited field development and disincentivised efforts to halt production decline. However, as in the Arctic, decline is now forecast to be arrested. Lukoil, for example, are planning substantial investment over the next four years at fields like Khvalynskoye and Yuri S. Kuvykin, where ice-class jack-up production units are likely to make development feasible. By 2023, the area is forecast to account for 24% of Russian offshore oil and gas production (excluding gas produced by fields off the Crimea, over which Russia now has de facto control, and which produced 410m cfd in 2013).

Expanding Eastwards

The Russian Far East is a relatively new area of offshore E&P. The Sakhalin-2 project started up in 1996 but offshore activity is still geographically limited, even if production volumes, at 0.78m boepd, are significant. The area accounted for 88% of Russian offshore production in 2013. Moreover, the Far East is Russia’s window on the developing economies of the Asia Pacific region, so companies are seeking to increase activity there, particularly with regards to LNG. In October 2013, the first Sakhalin-3 field, Kirinskoye, a subsea-to-shore development, began ramping up to 580m cfd. Further such field developments are planned out to 2023, when the area is projected to produce 0.95m boepd, its share falling to 65% despite new Capex due to faster Arctic and Caspian growth.

Thus production is forecast to grow in each of Russia’s offshore areas, driven largely by investment in high-spec jack-up, fixed platform and subsea field solutions. Total offshore oil production is projected to grow with a CAGR of 8.9% from 2014 to reach 890,000 bpd in 2023, and gas production likewise at 2.5% to reach 3.36 bcfd. Offshore would then account for 6.7% of the country’s oil and gas production, a far cry from the 2% nadir of post-Soviet decay.

OIMT_2013_09Global offshore production of natural gas totalled 98.3 billion cubic feet per day (bcfpd), or 17.5 million barrels of oil equivalent per day (mboepd) in 2012. In comparison, world offshore oil production in the same year was 24.4 mbpd. Thus in terms of aggregate energy output, gas accounted for 42% of combined offshore oil and gas production. Here we examine the strong growth trends associated with this substantial element of offshore production.

Gas Guzzling Growth

As the Graph of the Month shows, in the 30 year period 1983-2013 global demand for natural gas is projected to have risen by 130%: 82% for OECD and 189% for non-OECD countries. Developing economies’ gas demand overtook OECD gas demand in 2004, and since then non-OECD gas demand growth has accelerated to 192 bcfpd, exhibiting a 3.8% CAGR in the period 2008-13. However, whereas demand for oil in OECD countries fell 5.5% in the period 2008-13, gas demand still grew steadily, reaching a projected 151 bcfpd in 2013 with a 1.6% CAGR since 2008.

Production Buoyancy

Rising demand across the board has incentivised supplyside growth, manifest in the offshore sector as a 231% increase in gas production in the period 1983-2013. The graph shows that historically NW Europe and North America were the main offshore gas production regions, accounting for 54% (35 bcfpd) of world production at their 2001 peak. In 2008 Middle East/ISC production reached 20.6 bcfpd with the addition of gas from Iran’s Pars South field, thereby becoming the foremost offshore gas producing region. By 2013 it accounted for 33% of world offshore gas production. The rise of the Middle East was complemented by a more gradual but still vast rise in Asia Pacific production, from 14.0 bcfpd in 2000 to 22.7 bcfpd in 2013: 22% of world offshore gas output. NW Europe, North America and the Mediterranean account for 17%, 9% and 9% respectively.

Offshore Diffusion

At the start of September 2013 there were 261 fields under development that will produce associated or non-associated gas. 124 are scheduled to come onstream by end 2014, including 6 Pars South projects producing a total of 12.8 bcfpd. Much of the growth in offshore production in the mediumterm future is due to come from such large projects located in emergent offshore gas regions. For example, 2 trains of the Mozambique LNG project are scheduled to start up in 2018, using gas from the prolific offshore Rovuma Basin to produce LNG equivalent to 1.3 bcfpd natural gas, with 5.3 bcfpd from a further 8 trains to follow. In Australia and the East Mediterranean too, large projects like Greater Gorgon and Leviathan promise to significantly enhance world offshore gas production.

Although offshore production may have to compete with cheaper onshore (and in some regions, unconventional) gas production, global offshore gas production is nonetheless forecast to increase by a further 37% by 2020 to just under 140 bcfpd. The proliferation of large offshore gas projects and the overall trends in production and demand all suggest a bright future for offshore natural gas.