Global oil and gas capital expenditure outlook – 2010

Mar 30, 2011 12:00 AM

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Chris: there are tables you may want to include here, i cannot access them on the net; Dani

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National Oil Companies (NOCs) to drive investment

GlobalData’s new report “Global Oil and Gas Capital Expenditure Outlook - 2010 National Oil Companies (NOCs) to Drive Investment” provides an in-depth analysis and insights into oil and gas sector capital expenditure outlook for 2010. The report provides a detailed analysis of the current and future capital expenditure position of national oil companies, and integrated, and independent oil and gas companies.

It presents detailed Information and analysis of capital expenditure in oil and gas segments; Upstream and Midstream. It also provides detailed information on capital expenditure across various regions; North America, South and Central America, Europe, Middle East & Africa and Asia-Pacific. The report also covers the planned oil and gas projects in upstream, refining, pipeline, LNG and petrochemical projects.

Global oil and gas sector spending to rise 12 % in 2010, driven by NOCs’ investments
A drop of over $ 100 per barrel in oil prices in 2010 bringing it to around $ 32 per barrel prompted many national oil companies, which depend on oil for most of their revenue, to cut spending, delay and cancel oil and gas projects. However, most NOCs have the necessary financial strength to fund their capital-intensive projects and they continued to spend during the ongoing economic downturn. The capital expenditure of oil and gas companies witnessed a significant decrease in 2009 after the surge in 2007–08.

However, in 2010 capex activity is expected to rise, driven mainly by large National Oil Companies (NOCs). Oil and gas spending in 2010 is expected to increase largely driven by: China Petroleum & Chemical Corporation, Ecopetrol, Petroleo Brasileiro S.A., Petroleos de Venezuela S.A., Petroleos Mexicanos (PEMEX), PetroEcuador, PTT Exploration and Production Public Company Limited, Nigerian National Petroleum Corp, Sonangol and Libya's National Oil Corp. Modest reductions in spending are likely to be implemented by Saudi Aramco and Qatar Petroluem Co.

xxxx  Figure 1: Oil & Gas Spending, By Company Type, $ Billion, 2010

xxxx  Source: GlobalData

Developing new discoveries in more geologically challenging regions will entail higher capital expenditure
In 2009, over 350 oil and gas discoveries were announced worldwide. The majority of these discoveries were in South and Central America (29 %), followed by Middle East & Africa (26 %), Asia-Pacific (23 %), Europe (18 %) and North America (5 %). Petrobras was the leading company with 50 discoveries.

To capitalize on the new discoveries, companies will be required to increase their capital budgets for 2010 and beyond. Some of the discoveries in Angola, Brazil and Nigeria require significant development and lifting costs, which require a long-term oil price in excess of $ 70 per barrel.

xxxx Figure 2: Number of Oil & Gas Discoveries By Top Countries, 2005–09

xxxx Source: GlobalData

Corporate M&A deals will drive M&A investment in 2010
The second half of 2008 was a highly volatile period for the global oil and gas industry. Following the high deal activity in 2007, global mergers, acquisitions and asset transactions started to fall in 2008. The fall in the commodity prices, the credit crisis which led to the financial crisis and the global economic recession decreased the appetite for deal activity by the end of 2008.

Deteriorating asset values caused more financial difficulties leading to a decrease in the ability of the financial institutions to continue lending which is hindering the flow of required investments across industries. The global economic slowdown resulted in reduced demand for oil and gas. As a natural response to the falling demand, the appetite for risk decreased leading to a low deal activity from the 4th quarter of 2008.

With crude oil prices stabilizing above $ 75 a barrel, M&A activities are expected to increase in 2010 with the Chinese and Indian NOCs expected to be the major players. These companies will look to acquire overseas assets to expand their footprint and secure future energy supplies. The unconventional resource deposits will offer significant growth prospects and attract huge investments from both International Oil Companies (IOCs) and NOCs.

xxxx Figure 3: Oil & Gas Deals By Industry, Number Of Deals and Deal Value, 2008Q1–2009Q4

xxxxx Source: GlobalData

Global refining industry’s capacity growth will be driven through NOCs
The global refining capacity has grown at an AAGR of 1.05 % from 2000 to 2008 and is expected to grow further at an AAGR of 3.5 % from 2008 to 2013, based on committed projects. In the next few years, the global refining industry’s capacity growth will be driven through NOCs while poor market conditions will reduce private company investments. The global refining industry has traditionally been dominated by private, independent oil companies (IOCs).

Even after the nationalization of the oil industry in many countries, these companies maintained their dominance by capitalizing on their technological competence. Many countries, especially in Asia and the Middle East, have specific national priorities for pursuing refining projects. China is going ahead with its refining projects to meet its surging domestic demand for refined products and to reduce dependence on imports.

The Middle East is investing heavily to become a major petroleum products export hub by utilizing its domestic heavy and sour crude as well as satisfying its increasing domestic light distillate demand. Such national objectives are being met through the NOCs in these countries. For example, Iran is planning to invest $ 10-15 bn on building new refineries and renovation of existing refineries.

Future investments and refining capacity growth will be driven by NOCs as they will be financially supported by national governments to pursue their cost intensive refining projects. Seven of the top 10 planned refineries in the next 4 years are operated by national oil companies.

xxxx Figure 4: Global Major Planned Refining Projects, 2010

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