Manup Industry Roundup - W0323: NEWSL -02
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Will 2023 Be Another Strong Year For The Oil Industry?
Oil companies started 2023 with less debt than a year ago. Continued capex discipline and high energy prices could make for another year of strong earnings. However, it’s not all smooth sailing from here on out.
First, there is the windfall profit tax that the EU and the UK decided to impose on energy companies in order to generate some money for its energy aid programs. This could make energy companies less profitable in 2023.
Below are the oil and gas stories and news that made headlines this week carefully curated by?Manup.
Summary of the news
Upstream Oil and Gas Will Have Another Strong Year in 2023
Last year was a good year for the oil industry. Despite predictions of its looming demise as renewable energy leads to electrification that in turn leads to the death of oil, fossil fuels were the stars of the year, with demand for all, including coal, notably rising.
The upstream oil and gas sector will have another strong year in 2023 based on favorable supply-demand fundamentals, although average energy prices will not reach their high 2022 levels.
According to a new report by Moody’s Investors Service, Aggregate global upstream spending will rise sequentially in 2023, by about 10-15%, while overall spending will still fall below 2016-19 levels
Rising costs for oilfield services globally, a tight labor market in the U.S., and lingering supply-chain delays will all limit any E&P company efforts to expand production capacity quickly in 2023
According to a chart included in the report, which showed upstream capital expenditure from 2015-2023, this year’s capex is projected to come in at between $460 billion and $480 billion. Last year’s figure is projected to be $417 billion, 2021’s was $384 billion, and 2020’s was $353 billion, the chart outlined.
Figures from 2015-2019, according to the chart, can be seen below:
However, most producers will generate solid free cash flow and will have the financial capacity to reduce leverage, boost or maintain shareholder returns, reinvest or make acquisitions.
Larger, lower-cost exploration and production (E&P) companies and large integrated oil companies will deliver the strongest free cash flow and have the most flexibility.
UK’s First Licensing Round Since 2019 Shows Support For UK Oil And Gas Sector
The United Kingdom’s 33rd offshore oil and gas licensing round, which was launched to strengthen the country’s energy security amid the current energy crisis, has attracted a total of 115 bids across 258 blocks and part-blocks from 76 companies, as outlined by the UK regulator, North Sea Transition Authority (NSTA).
According to Offshore Energies UK (OEUK) this shows how UK offshore energy operators are doing their best to support the nation’s energy future.
The licensing process, which the NSTA believes will significantly boost the UK’s energy security, opened on 7 October 2022 and closed on January 12, 2023 offered acreage across the North Sea – the West of Shetland, Northern North Sea, Central North Sea, Southern North Sea, and East Irish Sea – including four priority areas, which have known hydrocarbons.
According to NSTA data The 115 bids were spread across 258 blocks and part-blocks and were submitted by 76 companies
comparing this with the NSTA’s 32nd licensing round in 2019 which received 104 applications covering 245 blocks and part-blocks.
In 2019 a total of 768 blocks and part-blocks were offered, compared with 932 this year. The latest round included four priority areas with known oil and gas reserves, but many others are less certain.
The NSTA will spend the next three months analyzing the applications and announce the awarding of licenses from April when more details will become clear.
OEUK added that oil and gas were essential to the UK’s energy security. Its Economic Report 2022 described how the UK gets about 75% of its total energy from these fuels and is already partially reliant on imports.
In 2021, for example, the UK had to import just over 60% of its gas. Also, about 23 million UK homes – around 85% of the total – rely on gas boilers for heat.
The UK also relies on gas for its power supplies with gas-fired power stations producing 42% of the nation’s electricity.
Similarly, oil powers most of the UK’s transport with 32 million vehicles running on petrol and diesel. Another massive factor is that the offshore industry also supports 200,000 jobs across the UK.
These license applications could potentially help the nation safeguard its supplies of oil and gas and support the UK during its transition to low-carbon energy.
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Six Trends Set To Dominate Offshore Wind Sector In 2023
The offshore wind sector witnessed another year of high growth despite global financial uncertainties but here we will look for trends that we expect to dominate 2023.
Although 2022 did not match 2021’s record of over 19.5GW of online capacity, which was mainly driven by the expiration of national feed-in-tariffs in China, 2022 witnessed the second-highest amount of global online capacity with almost 8.5GW. FIDs were taken on over 11.5GW of projects, making it the fourth-highest year for FIDs.
Westwood forecasts that 2023 capacity additions will be 55% higher than 2022 levels, keeping the offshore wind sector busy.
This continued growth is expected to take place in a year where the sector will also need to deal with several issues to keep up the momentum.
Some of the key themes that Westwood expects to see this year include;
Auction results and new auctions to be launched
A total of 54.9GW of offshore wind leases were awarded in 2022. Several offshore wind lease rounds are scheduled to be launched and potentially conclude in 2023. These include the 4GW Celtic Sea floating wind auction in the UK, the 500MW Floating Mediterranean auction in France and the Central Atlantic, and the Gulf of Mexico and Oregon auctions in the US.
Offshore wind auctions are also planned to take place for the first time in new markets. Up to 10GW of floating wind projects are planned to be auctioned in Portugal, 4GW offshore Tamil Nadu State in India, and Lithuania is also planning to launch its first lease auction for a 700MW wind farm.
Investment in newbuild vessels
Offshore wind production targets that have been set by various countries, means there will be a lot more offshore construction activity taking place globally from the mid-2020s. In turn, this will translate to increasing demand for construction vessels in the offshore wind sector.
Development uncertainties
2022 was a year in which the offshore wind sector faced several risks, which have the potential to impact the decisions of developers investing in their forward-looking pipeline. Factors such as price volatility, cost inflation, political unpredictability, and supply chain bottlenecks will continue to make commercial decisions increasingly difficult and uncertain in 2023.
Fallout of losses faced by turbine OEMs
International turbine manufacturers have had a difficult 2022, with Vestas, Siemens Gamesa, and GE reporting financial losses.
Although most of these losses can be attributed to the onshore wind side of these companies, they will have knock-on effects on their offshore wind segments. As a result, turbine OEMs are facing significant losses as the pricing for the turbines has already been agreed upon, meaning that any price rises or additional costs incurred upon delivery are absorbed by the OEM.
Chinese EPC supply chain companies entering new markets
After experiencing huge capacity growth in 2021 adding 16.4GW, driven by the termination of central government subsidies, 2022 and 2023 installed capacity is still forecast to remain higher than the average 2-3GW levels of 2019-2020. Chinese EPC contractors have begun making inroads outside of the country and this is expected to increase.
Integration of offshore wind with other forms of energy
Hydrogen production, electrification of oil and gas platforms, and the joint development of offshore wind projects with other renewables are some areas in which offshore wind projects are starting to combine with other forms of energy.
The offshore wind sector will also witness an increase in projects being combined with other sources of renewable energy. A recent example of this is Hollandse Kust West Site VII wind farm in the Netherlands. RWE Renewables won the lease rights to this site in November 2022.
Saipem Wins $900 Million In New Offshore Contracts
Saipem has been awarded two offshore contracts for a total amount of approximately 900 million USD. The first contract - in partnership with Aker Solutions has been awarded by TotalEnergies, for the LAPA Southwest (LAPA SW) Development Project, a deepwater oil field in the Santos Basin in the South Atlantic, 270km off the coast of S?o Paulo, in Brazil.
The scope of work encompasses the Engineering, Procurement, Construction, and Installation (EPCI) of Subsea Umbilicals, Risers, Flowlines (SURF) as well as a Subsea Production System (SPS).
LAPA SW Development Project is the first-ever integrated SURF and SPS project awarded by TotalEnergies.
The Lapa South-West project will be developed through three wells, connected to an existing FPSO – located 12km away – currently producing in the northeast part of the Lapa field since 2016. The development represents an investment of approximately $1 billion.
The other contract has been awarded by Equinor for the Irpa Pipeline project.
The project, located in deep waters in the Norwegian Sea, consists of the installation of an 80-km-long swagged Pipe-in-Pipe pipeline connecting the subsea production template of Irpa field to the existing Aasta Hansteen platform.
The offshore operations are planned to take place in 2025 and will be performed by Saipem’s flagship vessel Castorone.
Other stories we are following…
Cheers!