Douglas-Westwood forecast: 35% increase in well completion count from 2013-2020 to drive only 17% rise in oil, gas output
By Matt Cook, Douglas-Westwood
Oil and gas development wells drilled around the world will need to exceed 106,000 per year by 2020 in order to meet global hydrocarbon demand, Douglas-Westwood stated in its World Development Drilling & Production Forecast. This compares with more than 79,000 such wells drilled in 2013. More than 670,000 oil and gas wells will need to be drilled through 2020.
Global oil consumption rose by 8% from 2004 to 2012, while gas consumption rose by 24% over the same period, according to BP’s 2013 Statistical Review. Many countries are seeking cleaner energy-generation solutions and are moving away from coal and oil to natural gas. Natural gas is set to become ever more available as LNG technology continues to evolve and infrastructure is developed. This is especially the case in Asia, where expanding economies necessitate a larger gas supply.
Traditionally productive provinces are in decline and face a variety of futures. Shallow-water oil production is struggling for growth despite high levels of investment, while many aging onshore regions require redevelopment and must turn to unconventionals, as the North American markets have, to seek long-term growth. North America, China, Saudi Arabia and Russia will continue to be big players but will soon be joined by the newer deepwater-driven players in Angola, Brazil and Nigeria.
Africa will be a continent of mixed futures in oil and gas production. West Africa’s continuing deepwater strength is a world away from North Africa’s uncertain onshore production blighted by political unrest and civil wars.
North Africa’s continuing turmoil adds a blot to an otherwise bright future for the African upstream sector. Libya’s output is showing no signs of return to pre-war levels as many fields and ports in the east of the country are still controlled by separatist militias. Egypt, meanwhile, is struggling to pay IOCs and independents for gas, leading to a decline in both production and the pool of potential investors.
West Africa will sustain strong growth offshore as IOC-led projects continue to go from strength to strength. Nigeria plans to introduce new petroleum laws in the near term to create a less risky operating environment. Angola’s deepwater production is set to ramp up production as its shallow-water sector matures. Pre-salt discoveries in recent years are now showing promising early production, suggesting they could be as productive as their equivalents across the Atlantic. These factors will see African deepwater well completions rise by more than 600% from 2013-18.
Across the South Atlantic, offshore Brazil will continue to dominate Latin American production. A host of FPSO projects planned for its already prolific Campos and Santos basins will boost deepwater well completions 246% by 2020. Considering this, Douglas-Westwood predicts offshore production will rocket to just under 4 million bbl/day by 2020, a 75% increase from 2013 levels. Perhaps surprisingly, this is a low-case view as Petrobras’ huge debt and delays for newbuilds means that their deepwater plans are unlikely to be carried out in their entirety.
The rest of Latin America has a positive outlook. In Colombia, reforms in 2003 allowed foreign oil companies to own 100% stakes in oil ventures and thus saw output nearly double from 2004-2013. A well-organized regulatory body will allow this trend to continue, with production reaching 1.4 million bbl/day by 2020. Mexico’s 2013 energy reforms will undoubtedly lead to a host of opportunities for IOCs – with discoveries in the deepwater Perdido Fold Belt, as well as a shallow-water production agreement with the US.
A significant production increase will unlikely be seen until at least 2018-19, however, due to licensing rounds not being held until the end of 2015. Typically, onshore wells in Latin America have low productivity and, therefore, production growth will require large drilling campaigns. This will be seen in Colombia as IOC-interest increases, whereas drilling activity will grow by 27% by 2020 in Ecuador due to maturing fields.
The biggest export opportunities for Latin American markets are expected to lie in the prospering Southeast Asian economies. China is the most significant of these as it continues to seek to boost domestic production, as well as create new import opportunities with investment abroad to fuel one of the world’s largest economies. Domestically, declining conventional-based onshore output will be rescued by heavy investment into unconventionals – most notably coalbed methane (CBM) production – as shale oil and gas struggles for growth in the medium term. Offshore, CNOOC has ambitious plans for deepwater gas projects alongside a shallow-water market that has seen strong growth in recent years. Historically, CNOOC has often met production targets. Douglas-Westwood expects the pressure of growing domestic demand will ensure that the medium term will be no different. This will be achieved by a 23% increase in offshore well completions by 2020.
Looking abroad, China is strengthening ties through loans and E&P activity with Turkmenistan and Uzbekistan – which have some of the world’s largest gas reserves. Beijing has already tapped into the Turkmen market with gas transported through the Central Asia-China pipeline.
Japan and South Korea, important regional importers, represent attractive opportunities due to high local gas prices. The rest of Asia Pacific (APAC) is expected to capitalize on this, with gains in gas production driving LNG exports. Leading the way will be Shell and Petronas’ FLNG plans. Petronas will be placing its PFLNG1 facility on Malaysia’s Kanowit field, while Shell’s facility will produce at Australia’s Prelude field, going some way to helping fill Australian LNG terminals’ capacity and achieving Australia’s plans to become the world’s largest LNG exporter. Further carrying of the responsibility of fulfilling Australia’s LNG plans are the government’s ambitious CBM targets. Douglas-Westwood expects CBM production to account for approximately 50% of Australia’s total gas output by 2020. Shallow-water gas drilling will increase in Southeast Asia as markets look to take advantage of export opportunities to Japan and South Korea.
Thailand and Vietnam will account for much of this drilling due to high decline rates and low well productivity. Thailand alone drilled 410 wells in 2013 to maintain gas production at just under 1 million BOED. To put this into context, Qatar drilled just 45 wells in 2013, producing more than 2.6 million BOED of gas.
While China enters into the Turkmen and Uzbek markets, joint ventures between multiple IOCs and national oil company (NOC) KMG will see both oil and gas production improvements in Kazakhstan. Onshore, the giant Karachaganak gas field and Tengiz oil field in the west will see the utilization of injection technologies, as well as infrastructure upgrades, to boost output. Both of these redevelopments will see well completions rise 24% by 2020.
In the North Caspian, Kashagan – with reserves estimated at 38 billion BOE – faces delay after delay as the project experiences problems with sea and corrosive sour gas. It is now more than a decade behind schedule, with the original production-sharing agreement (PSA) signed in 1994.
Over the border in Russia, despite declining output from the mature Western Siberia and Urals-Volga regions – which in 2012 accounted for 85% of production, according to the US Energy Information Administration – production will be maintained by greenfield projects both onshore and offshore. Therefore, Douglas-Westwood expects Russia’s production to plateau into the 2020s, with an average annual growth of 1.4%. Onshore E&P activity will move into the Eastern Siberia region, which, along with the Russian Far East, holds nearly 10 billion BOE of gas reserves.
Offshore, Douglas-Westwood expects gas production to increase significantly with the completion of the three-phase Sakhalin project. This project, however, faces a possible barrier as it is located in the environmentally sensitive Arctic. With all this considered, Douglas-Westwood predicts well completions in Russia will rise by 18% from 7,475 wells in 2013 to 8,843 in 2020.
Western Europe will continue to rely on imported Russian gas into the 2020s as mature offshore fields, which typify the region, struggle for growth while large-scale shale gas extraction looks increasingly unlikely in the medium term. With many IOCs planning investment into UK offshore fields through EOR, deepwater plays and downstream infrastructure upgrades, Douglas-Westwood predicts that production will rally slightly to approximately 1.75 million bbl/day by 2017, requiring the recent 6% jump in well completions to be maintained. The necessary high levels of expenditure are unlikely to be sustained in the long term due to the UK’s offshore maturity. Therefore, Douglas-Westwood expects a resumption of decline toward the end of the decade. On the other side of the North Sea, Statoil will attempt improved recovery from brownfield projects. Along with the start of projects in the large Johan Sverdrup and Goliat fields, this will see the number of well completions sustained at around 200 per year beyond 2020. Douglas-Westwood expects these projects will see Norway break from the mold of other mature Western European producers and sustain gas production into the next decade.
Some of the biggest growth in drilling markets will be seen in the Middle East as NOCs invest billions of dollars into redeveloping maturing fields – with a 26% growth by the end of the decade. Declining production in Kuwait, Qatar and the UAE will see a cumulative spend of more than $200 billion. Kuwait will target onshore fields, but ongoing political infighting will probably hinder growth, and production targets will not be met.
Qatar aims to boost production from the offshore North Field, the world’s largest non-associated gas field. However, the short-term success of this depends on the lifting of a moratorium put in place to shift investment into downstream sectors.
The UAE will look to ramp up production in both oil and gas, spending $60 billion and $25 billion, respectively. The success of this redevelopment now rests solely with the UAE’s ADNOC. The NOC recently took control of all IOC assets in the country. Saudi Arabia, currently the world’s largest oil producer, will see onshore oil well completions rise 34% by 2020 as the country looks to maintain output at more than 10 million bbl/day. With several projects due to come onstream in the Arabian Gulf, offshore well completions will rise to 541 in 2020 from 370 in 2013.
In late 2013, Iranian production received a potential boost with the lifting of export sanctions as a deal was agreed with world powers regarding Iran’s nuclear program. However, the country’s oil and gas industry will still be partly in chains; even if sanctions are completely lifted, Iran would not meet its 4 million bbl/day target without significant IOC investment.
Neighboring Iraq has agreements in place to raise oil production to 12 million bbl/day by 2020. However, as civil unrest still plagues the country, Douglas-Westwood predicts these targets will be far from met, with production expected to rise to 6 million bbl/day from 3.1 million bbl/day in 2013.
The US will become a net exporter of hydrocarbons toward the end of the decade, depending on the continued success of the shale plays and possible legislation changes, with record levels of production sustained from the continued success of unconventionals. Driven by the prolific Bakken, Eagle Ford and Marcellus basins, the US has seen production rise 2.5 million BOED from 2011 to 2013 and onshore well completions hit over 37,000. As onshore production is buoyed further by the Wolfcamp and Bone Spring plays, the 45,000-mark will be achieved in 2016 going on to nearly 50,000 wells drilled in 2020.
In Canada, combined oil and gas production is expected to come out at 6.5 million BOED in 2014. Historically a natural gas producer, strong oil prices and the availability of shale gas in the US have seen oil overtake gas since around 2008. Oil production is expected to grow steadily to 2020 and beyond, fueled by oil sands and other unconventional growth in Western Canada.
Onshore fields will see well completions grow more than 60% to 15,610 in 2020 while fields offshore Eastern Canada will see the country’s first major subsea projects in the latter part of the decade.
Taking stock, Douglas-Westwood forecasts global growth to be good news for drilling contractors and oilfield services as the increasing abundance of mature markets requiring more and more wells to be drilled to achieve smaller gains in production. Indeed the Douglas-Westwood production forecast requires a 35% well completion increase from 2013-2020 for only a 17% rise in global output.