2019 Global Oil and Gas Review

The oil and gas industry is wrapping up a rather eventful year in which global investments in the energy sector continued to stabilise after three years of declines between 2015 and 2017.

The Organisation of the Petroleum Exporting Countries (OPEC) and its non-OPEC partners led by Russia continued this year with their policy to restrict oil supply, hoping to stabilise the market and prop up oil prices. The U.S. shale industry started to show signs of strain in 2019, with capital budgets reduced for 2020 and the US rig count falling since the middle of the year. US crude oil supply continues to grow but is now growing at a slower pace than it did over the past two years.

US natural gas production continued to boom this year, leading to lower gas prices in the United States. Several new liquefied natural gas (LNG) export facilities started operations in 2019, adding more LNG on the global market at a time when plants in Australia were also ramping up. This increased world supply, coupled with softened demand growth in key LNG importers in Asia, most notably China and Japan, led to weak natural gas and spot LNG prices globally. Gas supply in Europe was also adequate, with storage fuller than in previous years, which also weighed on European prices.

The year 2019 also saw several large oil and gas discoveries and the start-up of highly anticipated oil and gas projects around the world, including on the UK Continental Shelf (UKCS).

Oil Prices

In 2019, Brent oil prices averaged around $63 per barrel through early December, as the international benchmark has traded mostly within the $60 to $65 price range, following a slump to as low as $50 a barrel on Christmas Day in 2018.

Despite the continuous production restraint from OPEC and its Russia-led allies, prices failed to move much higher than $65 because of two key supply and demand issues. In supply, growing production from the United States kept a lid on oil prices, while concerns about flagging global economic growth and, as a consequence, slowdown in oil demand growth, weighed on market sentiment.

Faced with another looming glut with production growth from the US, Brazil, and Norway in 2020, OPEC and its partners decided in early December to add an additional 500,000 barrels per day (bpd) cut to the existing 1.2 million reduction, leading to a total cut of 1.7 million bpd in the first quarter of 2020. OPEC’s leader and largest producer Saudi Arabia pledged to continue to over-comply with its share of the cuts, meaning that total cuts could go as deep as 2.1 million bpd, if all countries in the OPEC+ pact comply with their quotas.

Natural Gas and LNG Projects

This year has likely been the biggest investment year for the LNG industry. Greenfield investments in LNG could reach nearly US$103 billion in 2019, a record for the industry, Rystad Energy estimated in July.

A total of 33 million tpa of liquefaction capacity and US$29 billion of capital expenditure (capex) was sanctioned between January and July 2019, from US projects Golden Pass LNG and Cheniere’s Sabine Pass Train 6, and from Anadarko’s Area 1 in Mozambique.

In early September, the partners in the Arctic LNG 2 venture led by Russia’s gas producer Novatek made the final investment decision for the project, whose total capex to launch at full capacity is estimated at US$21.3 billion equivalent.

LNG production and capacity are only set to grow over the next half-decade, with North America expected to lead production and investment growth through 2025, according to Rystad Energy.

Notable Discoveries

Halfway through 2019, the average monthly discovered volumes of oil and gas were up 35 per cent compared to the discovered volumes in the same period of 2018, the mid-year assessment of upstream data by Rystad Energy showed.

Big Oil and integrated national oil companies (NOCs) were exceptional in dominating conventional exploration, accounting for more than 80 per cent of discovered volumes in H1 2019, according to Rystad.

“Offshore discoveries in Russia, Guyana, Cyprus, South Africa and Malaysia are propelling what is already a very successful year for international E&P companies. With deepwater finds contributing half of the discovered volumes, it can be inferred that high-risk frontier plays in the deepwater are back on the map for explorers,” Rohit Patel, Senior Analyst at Rystad Energy, said, commenting on the mid-year assessment.

One of the biggest discoveries, of more than 100 million barrels of oil equivalent (boe), was made in the UKCS. In January Total announced a new significant discovery on the Glengorm prospect in the Central Graben area in the UK North Sea. The discovery—estimated to hold recoverable resources close to 250 million barrels of oil equivalent—is the largest discovery in the UK North Sea in a decade, since Culzean in 2008, and will likely be an industry hotspot for years, Rystad Energy reckons.

Notable Project Start-Ups

This year also saw several large oil and gas project start-ups.

Equinor launched production from the giant Johan Sverdrup oil field offshore Norway in early October. Johan Sverdrup is one of the largest discoveries on the Norwegian Continental Shelf (NCS) ever made and one of the biggest industrial projects in Norway for the next 50 years, according to operator Equinor. The field has expected resources of 2.7 billion barrels of oil equivalent.

Offshore Israel, first production from the Leviathan natural gas field is now expected in December 2019, according to one of the partners in its development, Noble Energy.

In the midstream sector, Russia’s gas giant Gazprom launched in early December the first Russian pipeline gas supplies to the big demand centre China with the start-up of the Power of Siberia natural gas pipeline between Russia and China spanning 3,000 kilometres.

Major UK Start-Ups and Project Sanctions

In the UK, 2019 saw the start of several major oil and gas fields, and pledges for additional investments in expansion of existing production and platforms.

Total started up in June production from the Culzean gas condensate field located 230 kilometres off the coast of Aberdeen. With a plateau production of 100,000 barrels of oil equivalent per day (boed), Culzean is set to account for around 5 per cent of the UK’s gas consumption. Gas from the Culzean field is being exported via the CATS pipeline and the UK National Grid, while condensate is stored in a Floating Storage and Offloading (FSO) unit for offloading by shuttle tanker.

Then in August, Equinor produced first oil from the Mariner field which is expected to produce more than 300 million barrels of oil over the next 30 years. Mariner is expected to produce annual average plateau rates of around 55,000 barrels of oil per day and up to 70,000 barrels of oil per day at peak production.

Shell and its partner Ithaca Energy announced in October that they had taken a final investment decision (FID) on the Pierce Depressurisation Project in the UK Central North Sea. Thanks to the project, Shell will begin exporting gas from the Pierce field.

“It is Shell’s eighth final investment decision in the UK Continental Shelf since the start of 2018. Each is part of a careful and cost-effective strategic expansion of our North Sea capacity, in line with our core upstream focus on profitable investments and competitive growth opportunities,” said Steve Phimister, Vice President Upstream and Director of Shell U.K. Limited.

More development projects will be sanctioned in the UK North Sea through 2022, Rystad Energy said in September.

As many as 38 new UK offshore projects could reach FID over the next three years, for a total of US$22.6 billion in greenfield expenditure.

“If operators’ plans play out as intended, the 38 potential project commitments expected over the next three years will provide fertile ground for contractors, and a quick look at successful UK North Sea service companies from the recent past sheds some light on who may capture this growth in the near future,” said Audun Martinsen, head of oilfield services research at Rystad Energy.

Meanwhile, oil and gas production in the UK North Sea in 2019 is expected to be slightly higher than 2018 production, industry association OGUK says.

Average yearly oil and gas production on the UKCS rose by 20 per cent between 2014 and 2018, from 1.42 million boepd to 1.7 million boepd, according to OGUK’s Economic Report 2019.

The recent positive trend has continued in 2019 with production in the first six months of the year at 1.74 million boepd. OGUK sees total 2019 production at the higher end of the production forecast in its Business Outlook 2019, at around 1.73–1.75 million boepd. This would represent an increase by 2 to 3 per cent compared to 2018 production levels.