Archives for posts with tag: offshore oil

Offshore exploration has been challenged since the onset of the downturn. There have been some major discoveries in countries such as Guyana and Mauritania, but oil company exploration spending remains significantly lower than pre-downturn outlay, and in 2018 offshore discoveries fell to the lowest level in around 50 years. That being said, might there now be signs of some improvement to come?

For the full version of this article, please go to Offshore Intelligence Network.

Among the many specialised vessels to be found within the diverse world of shipping are Floating Production, Storage and Offloading (FPSO) units, which are used to exploit offshore oil and gas fields. Although few in number compared to say, tankers, they tend to be high-value units, and market cycles in the FPSO sector make for an interesting comparison with more conventional shipping markets.

For the full version of this article, please go to Shipping Intelligence Network.

 

On July 14th 2015, after 20 months of negotiations, Iran and the so-called “P5+1” signed the “Joint Comprehensive Plan of Action”: in return for US, EU and UN-mandated sanctions against the country being gradually lifted, Iran has agreed to roll back its nuclear capabilities. Should the deal stick, the door will open to foreign investment once more. What, then, are the possible implications for Iranian offshore oil? Should this deal stick, IOCs will soon be able to operate in Iran once more. What, then, are the possible implications for Iran’s offshore sector?

Political Locks

On the eve of the Islamic Revolution in 1979, total Iranian oil production stood at 6.0m bpd, of which around 12% (0.72m bpd) was from 13 offshore fields producing oil, all located in shallow waters and exploited via fixed platforms. The turmoil of the Revolution saw oil production drop to 1.70m bpd in 1980, and in the ensuing Iran-Iraq War, offshore fields like Salman were shut in due to military action. As a result, actual offshore oil production was less than 50% of capacity for most of the 1980s; after the War, production began to recover, peaking at 88% of capacity (0.60m bpd) in 1997. However, as US and then EU economic sanctions on Iran tightened, IOCs were forced to exit the country, depriving Iran’s offshore sector of key investment and technology. Development work slowed and much of Iran’s offshore 2P reserves (30.3bn bbl of oil; 707 tcf of gas) were locked away. At the same time, Iran lacked the resources to implement EOR at brownfields. As a result, the gap between actual and nameplate offshore production was 1.38m bpd by 2014, with production at 0.54m bpd.

Rusty Hinges

Now that sanctions are to be lifted, indications suggest Iran aims to get as much oil production as possible back onstream in 2015/16. Restoring offshore production is likely to require more than just turning the taps though. Iran’s ability to halt decline at brownfields has been curbed, in contrast to other mature producers like the U.A.E. Half of Iran’s active offshore oil fields predate the Revolution (the oldest started up in 1961). Extensive EOR work is likely to be required at such fields – one opportunity for IOCs. Thus, while offshore production is forecast to grow by 7.3% in 2015, this is mostly due to South Pars condensate production ramping up, rather than utilisation of older capacity.

An Alternative Entrance?

Iran is planning an “oil contract roadshow” in London in 2H 2015, with the stated aim of attracting foreign investment in E&P of $185 billion by 2020. However, it is likely that much of the investment will be directed towards stalled onshore projects such as Yadavaran, and to restoring production at mature onshore fields like Azadegan. A spate of onshore discoveries made from 2006 to 2008 may also be prioritised by cash-hungry Iran, particularly those in the Khuzestan province spanning the Iraq border. Some of Iran’s 7 undeveloped offshore fields like Esfandiar (532m bbl) may warrant priority, and the South Pars Oil Layer is scheduled to come onstream in 2018. But even taking into account the Caspian (home to the 2011 Sardar-e Jangal 500m bbl find), offshore oil opportunities for IOCs (and so vessel owners) may be limited at first.

It seems, then, that the offshore oil capacity gap could widen before it narrows. Certainly given its reserves Iran has long-term offshore potential, notwithstanding its troubled history. But observers expecting a quick and big uptick in oil-related offshore activity might need to be patient.

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Natural gas demand and onshore and offshore production data is now available in Offshore Intelligence Monthly, split out by region and country on pages 3, 6-7 and 20-25. Analysing this data, it is apparent that the offshore hydrocarbons cake just keeps on getting bigger.

Since 1993, world combined offshore oil and gas production has increased by 58%, to 43.7m boepd in 2013; and between 2013 and 2023, it is forecast to increase by a further 35%, to 58.9m barrels oil equivalent per day (boepd). While oil is playing its part in this, gas is proving an even more potent rising agent in the offshore mix, of which it is taking an increasing share.

Measuring the Ingredients

As the Graph of the Month shows, growth rates for offshore oil and gas production have moved more or less in line y-o-y, with gas consistently ahead of oil as hitherto undeveloped historical offshore gas discoveries are brought onstream. While offshore gas production grew with a 3.8% CAGR from 1993 to 2013, oil exhibited a 1.4% CAGR. The spread between gas and oil production is forecast to continue 2013-23, with gas and oil production CAGRs of 4.2% and 2.0% respectively. It is thus expected that offshore gas production will almost achieve parity in volume terms with offshore oil by 2023, accounting for over 49% of offshore hydrocarbons output (versus 32% in 1993).

Energy Hunger

The strength of gas in the offshore production mix in part reflects faster historical and anticipated growth in gas demand. Since 2009, oil demand growth has stagnated in OECD countries whereas gas demand growth has remained firm, averaging 3.0% p.a. 2010-13 with a rate of 2.1% projected for 2014. In non-OECD countries, gas demand growth averaged 4.7% over the 2010-13 period, compared to 3.9% for oil demand. Similarly, 2014 demand growth is forecast at 3.7% for gas and 2.7% for oil. As non-OECD countries continue to industrialise, demand growth for natural gas is likely to remain firm.

Let Them Eat Cake

Given this scenario, it is likely shale gas will meet only a portion of future demand. Conventional gas will still have a role in feeding world energy hunger, and the offshore gas element of this increasingly so. In 2013, 30% of world natural gas production was offshore; in 2023 this is forecast to reach 36%. Accordingly, the offshore gas field investment outlook is positive. Offshore field operators are initiating schemes to utilise associated gas at mature oilfields. Moreover, development of offshore gas fields is increasingly perceived as economic. Gas fields account for 51% of fields under development and 48% of undeveloped offshore discoveries.

More so than oil, offshore gas growth is driven by mega-projects. Current examples include nine South Pars phases off Iran, Leviathan off Israel and Shah Deniz II in the Caspian, due onstream in 2015-17, 2017 and 2019. Major LNG projects planned offshore East Africa and Australia, entailing extensive subsea production systems and deployment of the world’s first floating liquefied natural gas (FLNG) vessels (like Shell’s “Prelude”), are also responsible much of the forecast growth in offshore gas. All in all then, gas looks to be quite a tasty slice of the offshore cake. Bon appétit!

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