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40 Maritime Reporter & Engineering News Daily offshore oil & gas production, currently standing at around 43 million barrels of oil equivalent (boe), is fore- cast to grow to 53 million boe in 2010 and drive industry annual expenditure from $193 billion in 2006 to $248 bil- lion by 2010, according to the "The World Offshore Oil and Gas Production & Spend Forecast", a study on the prospects for the offshore oil & gas industry published by Douglas- Westwood and based on information in the Energyfiles database. Douglas-Westwood' managing direc- tor John Westwood said "High oil & gas prices over the period to 2010 will result in continued strong growth in the off- shore oil & gas sector. Over the next five years we expect annual capital expendi- ture to increase by 10 percent from just under $110 billion in 2006 to $120 bil- lion in 2010, but the real star of the show will be the less glamorous operational sector with a forecast growth of 53 per- cent, from $83 billion to $127 billion." Energyfiles director and report lead author Dr Michael R. Smith said "off- shore spends are increasing rapidly but there are considerable differences across the regions. The main causes for the dis- parities are an increasing shortage of lower cost prospects in all but the Persian Gulf and the limited availability of deep water sedimentary areas with potential for oil and gas reserves outside those already identified in Brazil, the Gulf of Mexico, West Africa and some other less prominent regions. Nevertheless all markets will retain ever-higher levels of operating expendi- ture. Overall, we expect West Africa to show the greatest growth at nearly $13 billion." The report stresses that new activity in the mature offshore regions will increas- ingly become dominated by existing and new start-up small oil companies (along with the relevant National Oil Companies) as producing and explo- ration assets are acquired by smaller companies that specialise in marginal field developments and in scavenging for tail-end production. Resource Limitations However, a particular concern is that over the next three years most sectors of the offshore industry will be equipment and people resource-constrained. "Day rates will remain high, especially for capital assets such as high specification drilling rigs and other vessels. The expe- rienced personnel needed to design, build, and operate drilling and produc- tion equipment will also command a growing premium". However, it is noted that "new rigs have already begun to enter the market and are now serving to moderate day rate growth. These restraints are rein- forced by limits on opportunities in off- shore regions available to private oil & gas companies." "The offshore market forces directing the industry towards new cost-cutting technology and other commercial inno- vations are strengthening. In this sphere the greatest challenges faced by technol- ogy developers remain problems related to the conversion of new products into proven hardware, in particular the reti- cence by oil companies to introducing unproven equipment into a high technol- ogy project. New low-risk ways of prod- uct introduction are needed for both technology developers and oil compa- nies to field-prove new technology." In the light of growing offshore expen- diture another challenge that both the oil companies and their contractors is fac- ing is that of accessing human resources. "The 'skills shortage' may in time be addressed as new people enter the indus- try attracted by higher salaries. But the 'experience shortage' is far more chal- lenging and there exists a growing potential for both technical and strategic mistakes to be made by inexperienced personnel acting in an environment of rapid technology advances" said Westwood. Low Cost Plays Disappeared On the other hand resource-limited growth is also of increasing concern said Dr Smith. "Besides the portfolios of a few NOCs operating in the Persian Gulf, the low marginal cost oil plays have vir- tually disappeared. Opportunities for finding and develop- ing large offshore oil fields with rela- tively benign sub-surface and reservoir conditions are now rare. Only the most demanding environ- ments in ultra-deep waters and Arctic regions are expected to offer new large scale opportunities by the end of the period." "Conversely, offshore gas still has opportunities related to the advent of new gas production and conversion technologies, the growth of gas markets in the developing world, and pressures by all governments to eradicate gas flar- ing. LNG projects and the beginnings of a GTL industry are kick-starting the development of stranded gas fields that have been lying fallow for many years and are also encouraging new explo- ration drilling in gas-prone areas." "What's more considerable growth is forecast for all forms of deep water pro- duction facilities, but especially floating production systems and subsea produc- tion and processing hardware. Subsea systems are also expected to attract an increasingly larger part of the shallow water offshore spend as margin- al development programs escalate." Future Oil Prices "The oil price rises of the last three years have had a big effect on prices" said Dr. Smith. 2006WorldYearbook2006WorldYearbook2006WorldYearbook Offshore O&G Spend Forecast to Surge to $247 Billion by 2010 0 50000 100000 150000 200000 250000 300000 Africa & Mid. East Europe & the FSU The Americas The Asia Pacific Glo bal T o t al 2001 2002 20102009200820072006200520042003 Global Offshore O&G Spending - 2001-2010 Global Offshore O&G Spending — 2001-2010 Total Spend, $ million 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Africa & Mid. East 23066 25697 28764 31494 38413 47784 54369 58903 65035 71240 Europe & the FSU 34488 32925 33444 35701 42433 49672 50811 51837 54597 59973 The Americas 37533 37389 39064 42769 49744 57926 59442 62475 67587 73425 The Asia Pacific 21050 22807 23667 25561 32154 37508 36693 37376 39431 42846 Global Total 116136 118819 124939 135524 162744 192890 201315 210590 226650 247484 MR JUNE2006 #5 (33-40).qxd 6/2/2006 11:18 AM Page 40
