Global OFS demand is set for a 25% decline in 2020: Here is how the recovery will unfold

Source: press release, 18 June 2020

Oilfield service yearly demand forecast by segment (source: Rystad Energy ServiceCube)
Oilfield service yearly demand forecast by segment (source: Rystad Energy ServiceCube)

Global demand for oilfield services (OFS), measured in the total value of exploration and production (E&P) company purchases, is set for a massive 25% yearly drop in 2020 as a result of the COVID-19-caused downturn, a Rystad Energy analysis shows. Spending is expected at USD 481 billion this year and take the first step on the road to recovery in 2021, when it is forecast to tick up by just about 2%.

The recovery will accelerate further in 2022 and 2023, with OFS spending by E&Ps reaching some USD 552 billion and USD 620 billion, respectively. Despite the boost, purchases will not return to the pre-COVID-19 levels of USD 639 billion achieved in 2019.

The comeback will not be visible across all OFS segments from 2021, however. Well services and the pressure pumping market will be the first to see a boost, while other markets will need to get further depressed before recovering.

“Despite the recovery in oil prices, it will take many quarters before all segments of the supply chain see their revenues deliver consistent growth. In case of an upturn, operators would prefer flexible budget items with production increments and high-return investments with short pay-back times. Therefore, we expect well service segments to be the first to recover, while long-lead segments will pick up much later,” says Rystad Energy’s Head of Energy Research Audun Martinsen.

Dividing OFS into six segments – maintenance and operations, well services and commodities, drilling contractors, subsea, EPCI and seismic – only the first three will manage to rise in 2021, while the latter three will have to brace for another year of falling revenues before they can expect improvements.

In absolute numbers, the maintenance and operations segment is poised for consecutive yearly rises in the next 3 years after slumping to USD 167 billion this year from USD 202 billion in 2019. Rystad Energy expects spending in this segment to recover to USD 175 billion in 2021, USD 193 billion in 2022 and USD 205 billion in 2023).

The well services and commodities segment is set for a similar recovery, but only after slumping to USD 152 billion in 2020 from USD 231 billion last year – the biggest decline among segments in absolute numbers. Here Rystad Energy sees spending at USD 163 billion in 2021, USD 189 billion in 2022 and USD 210 billion in 2023.

The same pattern also applies to drilling contractors, with the segment falling to USD 46 billion in 2020 from USD 62 billion last year, and then rising to USD 47 billion in 2021, USD 54 billion in 2022 and USD 57 billion in 2023.

The subsea segment, on the other hand, will fall from USD 25 billion in 2019 to USD 24 billion in 2020 and decline further to USD 22 billion in 2021 – before starting to rebound to USD 24 billion in 2022 and to USD 29 billion in 2023.

Similarly, EPCI is set to fall to USD 81 billion in 2020 from USD 105 billion last year. It will slide further to USD 74 billion in 2021, before rising back to USD 81 billion in 2022 and growing to USD 106 billion a year later.

Lastly, seismic is poised to decline to USD 12 billion in 2020 from USD 15 billion in 2019. It will first keep dropping to USD 10 billion in 2021, before rebounding to USD 11 billion in 2022 and to USD 13 billion a year later.

“At best there will only be certain regions and service segments that will see their revenues grow consistently. For the whole supply chain to recover, we will likely need to wait until after 2023, when we expect service purchases to return to their 2019 levels,” adds Martinsen.

Suppliers will face a continued challenge turning their bottom lines back into black and deal with their debt. However, while the oil and gas market is expected to take years to recover, the impending energy transition could be a potential avenue of hope as it could open up new markets for OFS players to leverage their capabilities and grow.

Learn more in Rystad Energy’s ServiceCube.