The COVID-19 pandemic has devastated global oil and gas project sanctioning this year and will cause total committed spending to drop to around USD 53 billion from 2019’s USD 190 billion, Rystad Energy projects. Postponed plans will, however, cause the total worth of final investment decisions (FIDs) to double next year and exceed pre-pandemic levels already from 2022.
Offshore commitments are now expected to reach USD 34 billion in 2020, down from 2019’s USD 101 billion. Onshore sanctioning is likely to fall to USD 19 billion this year from USD 89 billion last year.
Rystad Energy estimates total sanctioning to bounce back to around USD 100 billion in 2021, primarily supported by offshore projects, whose value is forecasted at USD 64 billion for the year. Although lagging onshore projects are projected to only account for USD 36 billion in 2021, they will see a steep rise in 2022 to around USD 100 billion, topping the expected USD 95 billion worth of offshore commitments that year.
In this update, Rystad Energy has revised up its 2020 offshore sanctioning total from USD 26 billion to USD 34 billion. This was driven by the Mero-3 sanctioning in Brazil, which is estimated to cost USD 2.5 billion to first oil. MISC has a letter of intent in place with Petrobras for the charter of the FPSO. The contractor will sub-contract the vessel construction work to Chinese yards, with China Merchants Heavy Industry (CMHI) leading the race to build both the hull and topsides. Siemens will deliver the power generation modules, while Aker Solutions is performing front-end engineering and design (FEED) and engineering work on the FPSO topsides.
Rystad Energy also expects commitments worth USD 3.6 billion related to the Payara development off Guyana in 2020. SBM Offshore is operating under an advanced commitment on the FPSO with ExxonMobil and its partners and the contractor has started procurement activities in collaboration with Chinese and Singaporean yards. The Chinese yard Shanghai Waigaoqiao Shipbuilding (SWS) is responsible for supplying the hull for the FPSO and the topsides will be built by Dyna-Mac and Keppel. It is now only a matter of when the FID takes place, and Rystad Energy expects it to happen soon.
Before the oil price crash, Shell had awarded a major contract to Sembcorp Marine for construction of the topsides and hull of a Floating Production Unit (FPU) for the Whale project in the US Gulf of Mexico. Now uncertain economic conditions have forced Shell to defer FID for the project to 2021. Whale has a breakeven of over $40 per barrel. As the second wave of COVID-19 surges through Europe, America and South Asia, it is uncertain whether the new development will start anytime soon, as the social distance norms and quarantine requirements will not only hamper the pace of development but could also lead to cost overruns.
When it comes to recent developments, Gazprom Neft has started development activities on its Chayandinskoye oil-rim development in Russia. The well construction program is under way and the expansion of the existing central processing facility at the main field is likely to start soon. The onshore development is estimated to cost around USD 1.3 billion and the field is expected to come on line by 2022.
Recently, the Norwegian Ministry of Petroleum and Energy approved the plan for development and operation (PDO) of the Balder Future project. The partners, Vår Energi and Mime Petroleum, submitted a revised PDO in December last year and selected their preferred contractors in 2019. The USD 2 billion development plan includes an upgrade of the Jotun floating production, storage, and offloading (FPSO) vessel which will operate between the Balder and Ringhorne fields. The FPSO is being upgraded by Worley, while Baker Hughes and Ocean Installer are responsible for supplying the subsea facilities.
Lastly, China Offshore Oil Engineering Co. (COOEC) confirmed the start of development activities on CNOOC’s Luda 6-2 oilfield off China in its second-quarter results. The Luda 6-2 development will entail a central processing platform and is estimated to cost nearly USD 170 million in greenfield commitments. Production is likely to start in early 2022.
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