Oil Producers Reshaping Offshore Projects to Survive Price War, Says IEA Report

Chineme Okafor in Abuja

To keep their various upcoming offshore projects profitable within the present low price regime, major oil producers across the world including Nigeria, have opted to re-engineer their respective deep offshore projects, a new report by International Energy Agency (IEA) has disclosed.

The IEA said in its Offshore Energy Outlook, which is part of the World Energy Outlook Series, obtained by THISDAY that hydrocarbon produced from offshore sources or locations have become major component of global oil and natural gas supply. Therefore, the agency pointed out that, countries which their deep offshore oil projects had been impacted by the 2014 oil price slump, have now cut down on their production costs.

The IEA examines the full spectrum of energy issues including oil, gas and coal supply and demand, renewable energy technologies, electricity markets, energy efficiency, access to energy, demand side management and much more. Through its work, the IEA advocates policies that will enhance the reliability, affordability and sustainability of energy in its 30 member countries, seven association countries and beyond.

It explained that these deep offshore oil projects were coming back fast, but much leaner and fitter than they were before to be able to become profitable when completed.

Also, designs of these offshore oil projects, the market IEA noted, are now simplified, standardised and downsized in this regards.

“Offshore oil and gas projects are being re-engineered for a lower price world. The costs of many offshore oil and gas projects have come down sharply in recent years, as companies try to ensure their viability in a shale-inspired lower price environment,” said the over 80-page report.

IEA further explained that, “In the aftermath of the oil price fall in 2014, proposed new deepwater projects were generally among the first to be delayed or cancelled as the industry moved towards shorter cycle investments, including shale.

“But offshore projects are now coming back into the picture, typically looking much leaner and fitter than they did before. Only the best projects are going ahead, but capital investments in the Norwegian offshore and in the US Gulf of Mexico that once required a breakeven oil price of $60-80/barrel are now claimed to be robust at $25-40/barrel.

“Designs are being simplified, standardised and (in some cases) downsized, and a large overhang in the market for offshore services and equipment is also helping to exert downward pressure on costs – although this could be reversed as activity levels pick up.”

“Digitalisation of offshore operations is being widely pursued as the next frontier for efficiency gains and cost reductions. In a world in which natural gas demand rises by almost 50 per cent to 2040 and oil consumption continues to grow, the interest in offshore hydrocarbon resources remains strong,” added the report.

In February, the Group Operating Officer (COO) Upstream of the Nigerian National Petroleum Corporation (NNPC), Mr. Rabiu Bello, told members of the National Assembly that the cost of producing a barrel of crude oil from the upcoming Egina oil field by the corporation and Total Upstream Nigeria Limited (TUPNI) would be $20 per barrel.

The 200,000 barrels per day capacity deep offshore Egina Floating Production Storage and Offloading (FPSO) is expected to begin production soon in Nigeria.

Continuing, the IEA said more than a quarter of today’s oil and gas supply were produced offshore, and mostly in the Middle East, the North Sea, Brazil, the Gulf of Mexico and the Caspian Sea.

It added that while offshore oil production had been relatively stable since 2000, natural gas output from offshore fields had risen by more than 50 per cent over the same period.

On projects development, the agency said : “Brazil remains the global leader in deepwater production; Mexico also sees rapid growth as a result of successful bidding rounds since 2016, alongside the United States, African producers and some new players including Guyana and Suriname.

“A 700 billion cubic metre (bcm) rise in offshore gas production to 2040 is split equally between shallow and deepwater developments, bringing the share of offshore production in total gas output above 30 per cent by 2040.

“The prospects for offshore gas remain relatively robust in a sustainable development scenario, but a decline in oil demand in this scenario weighs against new capital-intensive offshore oil projects.”