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In a year when the global oil and gas industry has slashed spending amid urgent budget revisions and sharp investment cuts, some analysts now expect the end of the tunnel to dawn, at least offshore. Rystad, a well-known Norwegian energy research and business intelligence company, expects offshore oil and gas investment to rebound from next year, but there will be a structural shift in offshore oil and gas investment, with nearly half of the investment going to floating production and storage. Earlier in October, rystad reported that Chinese shipbuilders were preparing for an increase in new orders for floating production, storage and unloading vessels (FPSOs) starting next year. This increase means that global offshore oil and gas exploration and production is picking up. In fact, analysts at rystad say that in the next five years, 40% of new shipbuilding in the energy industry will be FPSOs. Analysts at rystad did not predict the total number of new facilities and how they compared with previous years.
At the same time, banks, as they have done, often have divergent forecasts of oil prices. Goldman Sachs, for example, said it expected Brent crude oil prices to rebound to $65 a barrel next year, while Morgan Stanley said it would be difficult to break through the $50 mark next year. Goldman Sachs bank predicts that the new coronavirus vaccine will be available in the spring of 2021. On the other hand, Morgan Stanley Bank points out that the surge in US oil and gas production in the past few years is one of the reasons for its relatively pessimistic forecast. Another reason is even more important: investors have shifted their focus.
Environmental protection investment is getting more and more attention. Banks are following the trend by setting their own agenda, which includes encouraging customers to reduce their carbon footprint and seeking to make their businesses more environmentally friendly. Most of the time, that means less investment in oil and gas. And reducing investment and lending in oil and gas will mean a slowdown in the recovery of the oil and gas industry.
Paul Takahashi, a senior reporter of the Houston Chronicle, recently wrote a special article for the offshore oil industry. He talked about how enterprises were killed by two oil price crises in five years. Now, the most important thing is the new coronavirus, which is causing confusion to oil demand. Deep water drilling is particularly threatened by the current environment, and growing investor interest in renewable energy is also detrimental to the oil industry.
“I would not be surprised if oil and gas companies stay away from deep water due to long-term risks and the absolute cost of the project,” Paul quoted Tom Kellock, head of market consulting for IHS Markit offshore rigs “As the environment becomes more uncertain, we can see a trend towards more shallow water areas.”
Earlier this year, there was optimism that lifting the blockade would stimulate oil demand and prices and basically push oil prices back to normal. But four months later, no one believes that the global economy will recover quickly. Even Saudi Arabia, OPEC’s de facto leader and largest oil producer, which has almost always been bullish on oil regardless of actual fundamentals, is now taking a more cautious stance. According to Goldman Sachs, Saudi Arabia’s latest budget plan is based on Brent crude oil at $50 a barrel. Although the price is higher than the current price, it is also far below what Riyadh would like to see as the basis of the budget plan.
Even rystad, in his optimistic forecast of maritime spending, points out that “although the budget is higher, it will be quite cautious in terms of costs.” If OPEC + member countries maintain production cuts at 7.7 million B / D, then this caution is likely to limit any potential improvement in oil and gas expenditures that may result from continued OPEC + member country production cuts. ”
The current state of global demand has proved to be terrible. It is reported that Saudi Arabia is considering extending the current cut despite OPEC +’s original plan to cut crude oil production by another 2 million barrels a day from January next year. Commodity traders seem to believe that there is still a lot of oil in the world. Although some of them were optimistic just a few months ago, none of the commodity trading giants now believe that oil prices will improve substantially in the next six to nine months. They expect oil prices to remain around $40 a barrel until at least June 2021.
But now things are getting worse. It is these commodity traders who are pouring billions of dollars into renewable energy projects. The Financial Times reported at the end of September that mercuria, Cornwall, Vitol and Trafigura were eager to expand their business in the field of alternative energy.
“We should invest about 50 per cent of our investment in renewable energy over the next five years,” Marco Dunant, chief executive of mercuria, told the financial times global commodities summit
If commodity traders and big European oil companies jump on the renewable energy bandwagon, even if offshore spending rebounds next year, the future of the oil industry may be more problematic than it looks now.