Douglas Westwood’s (DW’s) 2016 Q3 World Oilfield Equipment (OFE) Market Forecast paints an unattractive picture for offshore OFE spend through to 2020. With year-on-year expenditure contractions of 11% expected between 2016-2020, total expenditure is set to decline from $67 billion (bn) to $43bn, due primarily to an oversupplied rig market and a sharp reduction in production platform orders.
Despite the negativity, DW has picked out two regional bright spots in its global offshore OFE expenditure analysis. Both Australia and Eastern Europe & FSU are set to record year-on-year growth of 3% and 5% respectively between 2016 and 2020 – bucking a global trend of shrinking spend.
Historically, both growth regions account for a small proportion of total offshore OFE spend, with Australasia and Eastern Europe accounting for 5% and 3% of cumulative 2011-2015 expenditure respectively. From this small base, DW has identified growth potential as these regions develop their offshore resources through the forecast period. By 2020, DW expects Australasia and Eastern Europe’s share of offshore expenditure to have increased to 6% and 4% respectively.
Regional Compound Annual Growth Rate (CAGR) for OFE Offshore Expenditure 2016-2020
Source: Douglas Westwood World Oilfield Equipment Market Forecast 2016-2020 Q3
Australia’s LNG projects are the key driver for Australasia’s positive offshore OFE outlook. Despite cost overruns and difficulty in obtaining long-term supply contracts, DW expects LNG projects, fed by offshore gas fields, to increase Australia’s gas production 37% over 2016-2020. This drive will boost offshore OFE spend, with Ichthys (Inpex), Scarborough (ExxonMobil) and Greater Western Flank Phase 2 (Woodside Energy) in particular.
Production in Eastern Europe & FSU has historically been dominated by onshore fields, with 92% of total production in the region attributed to onshore developments in the five-year period ending in 2015. A similar dominance is expected in the forecast, however, numerous high profile offshore developments will cause a surge in offshore OFE expenditure – resulting in the region’s positive offshore growth outlook. BP’s Shah Deniz 2 project, due onstream in 2018 with a subsequent four-year ramp up, is one such project. Further regional upside is possible beyond the forecast period from developments in the Russian Arctic, however DW has taken a negative view of these projects due to high start-up costs and the effect of international sanctions.
With Australasia and Eastern Europe both showing positive expenditure outlooks, DW’s analysis shows that opportunities for growth still exist, even in the current depressed offshore OFE market.