The approval of new projects in the oil and gas sector is set to plunge by more than 75 per cent in 2020 to $47 billion (Dh172.6bn) as energy companies reduce spending on exploration and production due to the coronavirus pandemic, according to a new report from Norway based Rystad Energy.
“At the beginning of this year, the project commitments forecast for 2020 were expected to be comparable to 2019, but the industry downturn thanks to Covid-19 has caused commitments to fall sharply,” said Karan Satwani, energy service analyst at Rystad Energy.
Of the total value in 2020, some $27bn is expected to be for offshore projects, with the remaining $20bn for onshore. In 2019, the total investment in the new projects reached $197bn, with $109bn going to offshore projects and $88bn to onshore projects.
“Going forward, Rystad Energy estimates that sanctioning will not pick up again and recover to 2019 levels anytime soon,” Mr Satwani said.
Covid-19 pandemic is the greatest challenge facing the world economy, which has slid into a recession that is expected to be the worst since the Great Depression, according to the International Monetary Fund. A number of oil companies have slashed spending to cope with the crisis.
Oil prices are also trending lower compared to last year as demand suffers following widespread restrictions on movement introduced by the governments to contain the spread of the virus.
Brent crude prices dropped from highs of almost $69 per barrel in January to $19.33 by mid-March as demand buckled. However, prices recovered to more than $40 per barrel on the back of an Opec+ agreement to cut production by 9.7 million barrels per day, with tapering of supply in place until 2022.
The spending estimates for the sector would have been even lower if not for the recent contract awards in Norway and Russia, the Rystad Energy report found.
Russia’s Gazprom awarded contracts for phase one of its Kamennomysskoye-More project at the Sevmash and Zvezdochka yards, both managed by United Shipbuilding Corporation. The contracts are for the construction of the foundation of an ice-resistant platform, with the design job outsourced to engineering player Karoll. Rystad Energy expects the first phase of the development will cost over $4bn.
Furthermore, Gazprom and RusGazDobycha have taken a final investment decision on the Semakovskoye field development in onshore Russia. An additional 13 wells are scheduled to be drilled between 2021 and 2022 at an expected cost of $1.2bn.
The report also said relief packages unveiled by the Norwegian government last month helped oil and gas operators improve project economics in Norway and award fresh contracts on new projects.
Global investment in energy is expected to slump 20 per cent or nearly $400bn in 2020 due to the “staggering” impact of the Covid-19 pandemic on the industry, the International Energy Agency said in May.