The oil and gas CAPEX is expected to grow at a CAGR of more than 8.4% during the forecast period. Factors, such as strong profitability following a trend to reduce project costs and optimize portfolios, which has led to divestment of low-margin fields, and increased focus on investment in higher-margin growth opportunities, are expected to increase the CAPEX during the forecast period. Moreover, LNG-oriented gas projects are witnessing increased investment, as it is a less carbon-intensive fuel and helps in the transition to a lower carbon economy. However, volatile crude oil and natural gas prices, coupled with slow economic growth at a global level, are expected to restrain the oil and gas CAPEX during the forecast period.
- The upstream sector is expected to be the largest segment, which would have the highest CAPEX, as several region's state-owned firms are prioritizing domestic oil and gas projects to improve energy security and reduce their dependence on imports.
- Several greenfield projects, along with deepwater and ultra-deepwater exploration in African countries such as Senegal and Mauritania, possess ample opportunity for increased capital expenditure.
- Asia-Pacific has recorded the highest gains in CAPEX and is likely to be the fastest-growing region, owing to operations of globally integrated majors along with national oil companies and new investments during the forecast period.
Key Market Trends
Upstream Sector to Dominate the Market
- After the downturn in the oil and gas industry, as crude oil prices increased, the upstream sector gained momentum, and CAPEX represented a gain of 5.5% y-o-y in 2019 and 7.2% in 2018. As a number of oil and gas projects continues to increase, the upstream CAPEX is also expected to increase during the forecast period.
- The upstream sector has almost 70% of the total CAPEX allocated to the oil and gas sector. It is expected to attract greater spending to fulfill the oil demand ensuring energy security. In 2019, IEA reported a CAPEX of USD 497 billion for upstream operations, with North America having the highest share.
- The number of final investment decisions (FID) for the upstream sector was more than 60, which was greater than the midstream and downstream sectors combined. Several upstream projects such as Agogo Oil Discovery and Glaucus Gas Discovery in Middle-East and Africa region have attracted major players and are expected to increase in CAPEX during the forecast period.
- The United States is expected to lead oil-supply in the next six years, supported by the shale industry, which has led to the transformation of the oil and gas industry, from nothing in 2010 to 7 mb/day 2019. The exploration and production activities in the United States have led the country to export more oil than Russia and overtake Saudi Arabia in the coming years. So, increased investment in the shale industry is expected to drive the CAPEX in the upstream sector.
- Hence, to meet the strong global demand for crude oil and natural gas, more investment is required for the exploration and production activities, which in turn is promulgating the CAPEX in the oil and gas industry.
Asia-Pacific to Dominate the Market
- Asia-Pacific is expected to witness a significant growth in the oil and gas CAPEX in the coming years due to the recent discoveries in the offshore and onshore region, coupled with increasing energy demand from countries such as China and India.
- The capital spending in the oil and gas sector is expected to witness a growth of 7% y-o-y in 2020 which is the highest amongst all regions. Major oil and gas companies have increased their spending, led by Chinese state-owned companies, notably PetroChina and Sinopec. These companies have raised their spending on domestic oil and gas exploration and production and on maintenance programs for mature fields.
- India's state owned ONGC is moving forward in domestic oil and gas which plans spend USD6.9bn in 2020, from USD3.7bn in 2019, to focus on development of assets in the Krishna-Godavari basin and new offshore, deepwater blocks that it acquired under the Open Acreage License Programme in 2019.
- Moreover, the energy consumption in Asia-Pacific is expected to grow by 48% over the next three decades. China and India have been largest consumers of oil & gas in the Asia-Pacific region, and pipeline network is growing in both of these countries. Hence, the CAPEX for oil and gas in the region is expected to increase during the forecast period.
The global oil and gas CAPEX market is moderately fragmented. Some of the key players are BP PLC, Exxon Mobil Corporation, Total SA, Chevron Corporation, and Royal Dutch Shell PLC.
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