Fair Wind After a Still Air Period (Oil and Gas Industry News Translation & Writing, Ru-En)

Oil & Gas Industry News Translation and Writing

Despite the adverse impact that low oil prices have had on offshore oil and gas projects, industry experts say a wide range of new offshore oil and gas production facilities are to be put into operation from 2018 to 2021.

Low prices for hydrocarbons had a serious adverse impact on offshore oil and gas projects. The oil price drop made oil-producing companies cut costs, which had a negative impact on oilfield service providers and producers of oilfield equipment. However, this business has been recovering quite quickly since early 2017. A number of major projects have been approved. It is predicted that a wide range of new oil- and gas-production facilities will be put into operation in offshore areas during the period of 2018 to 2021.

In Russia, this process is, unfortunately, complicated by sanctions. The obstructions that stand in the way of the new generation of Russian oil- and gas-production projects can prevent technological breakthroughs based on the joint efforts of leading service and equipment suppliers.

The crisis of the last three years has negatively affected offshore oil and gas projects. The surplus of oil supplies in the global market triggered by the shale revolution in the United States led to a fall in prices in the second half of 2014. The lowest Brent oil price was registered on January 20, 2016 ($26.01 per barrel). However, last year the average oil price was $45 per barrel.

According to forecasts, we can expect a growth in demand for oil in 2018. Nevertheless, any continuation of the shale revolution in the United States will keep oil prices from increasing. Over the years of the crisis, the cost of breakeven oil development in low-permeability reservoirs fell by 39%. The production rate of such oil in the United States, after a significant drop in Q1 2017, reached a maximum again and broke the record of 2014.

However, stable oil demand is forecasted for 2019 to 2021. First of all, it will be supported by the growing consumption of energy resources in China and India. According to the forecasts of the Norwegian analytical company Rystad Energy, the price of oil may increase to $80 per barrel of Brent from 2020 to 2021. This will be triggered by a lack of investment in production and deferred projects during the crisis of 2014 to 2016. Industry experts estimate the possible shortage of supplies at 1 million barrels of oil per day in 2021.

The prices of natural gas have also decreased significantly during recent years. For example, the LNG price in Asian markets has collapsed from $14/MBTU to $15/MBTU from 2012 to 2014 to $6/MBTU estimated following the results of 2017. In European markets, prices are in the range of $4 to $6/MBTU.

Several large facilities for the production of liquefied natural gas will be commissioned worldwide by 2021. In this regard, the excess supply in 2020 is estimated at 68 billion m3. However, the growth in demand for gas in 2023 to 2024 may result in a shortage of LNG in the market. The deficit is most likely to be covered by new projects for which the final investment decision is still expected.

Global LNG production can increase from 250 Mt in 2016 to 350 to 400 Mt by 2025. Most gas and LNG production projects, decisions on which have already been made or are expected, are not cost-effective at existing natural gas prices. According to Rystad Energy estimates, only a few are cost-effective, among which Leviathan in the Mediterranean and Russia’s Arctic LNG-2 are the largest.

Rystad Energy experts also emphasize that until very recently, the offshore oil and gas industry was going through hard times. However, there was very rapid growth in the industry during the first half of 2017. Decisions were made to implement at least eight major new projects, including White Rose West (Canada), phase II of Mad Dog and Buckskin (USA), Lisa phase I (Guyana), Leviathan (Israel), Coral using a floating LNG production facility (Mozambique), and R-Series (India).

The Norwegian association NORWEP specializing in offshore developments ranked projects in the following 18 countries among the top priority ones: Angola, Australia, Azerbaijan, Brazil, Canada, China, Egypt, India, Indonesia, Iran, Malaysia, Mexico, Nigeria, Russia (despite the sanctions that continue to apply to Russia and its oil and gas companies), Saudi Arabia, the United Arab Emirates, the United Kingdom, and the United States (Gulf of Mexico). According to forecasts, the offshore projects market in these countries will collapse to $160 billion in 2018 but will grow again by 2021. During the period of 2018 to 2021, these leading countries are estimated to spend about $698 billion, or 70% of all global offshore oil and gas exploration and development investments, for their offshore projects.

According to forecasts, the Brazilian market will be the largest in the offshore oil and gas industry in terms of investments attracted. It is estimated at $110 billion for the period from 2018 to 2021. The Norwegian market not included in the NORWEP estimate comes second ($98 billion). It is followed by the US Gulf of Mexico ($84 billion) and Great Britain ($77 billion). Among companies, British Petroleum, Eni, and ExxonMobil are the leaders in the number of new offshore projects approved for implementation since 2014.

The breakeven price of offshore projects has decreased by 40 to 60% since 2013. Statoil, ConocoPhillips, and Shell have managed to achieve the greatest success in this area. For example, Statoil has reduced this figure for projects not yet approved from $70 per barrel in 2013 to $27 per barrel in 2017 (a 61% reduction). Shell has reduced its breakeven price to $45 per barrel.

Among the largest companies operating offshore, Brazilian Petrobras is the leader in terms of investment volumes. It directs funds to offshore projects operated mainly on the shelf of their home country ($91 billion from 2018 to 2021). Petrobras is followed by British Petroleum, Saudi Aramco, and Shell, each of which can spend up to $45 billion for their offshore projects during this period.

Saudi Aramco operates in its domestic market, and leading private corporations have formed a diversified portfolio of offshore projects. For instance, British Petroleum divides the main flow of investments between the US Gulf of Mexico, Great Britain, Angola, Indonesia, Azerbaijan, and Egypt. Shell focuses on the development of offshore oil fields in the US Gulf of Mexico, Great Britain, Nigeria, and Malaysia.

As for Russia, Rystad Energy predicts a new peak of investments in the Sea of Okhotsk between 2018 and 2021 within the existing projects. The average growth of capital investments is set to be 16% per year. ExxonMobil claimed in February of this year that it would launch the second phase of the Odoptu field (the Sakhalin-1 project) from 2017 to 2018. The company is also planning to implement a gas project in the Chayvo field by 2021. However, Norwegian analysts have not ruled out the possibility of postponing the commissioning of a new phase of this project until 2025.

Gazprom plans to commission the Yuzhno-Kirinskoye field by 2021, but Rystad doubts that the implementation of these plans is possible before 2024.

Sakhalin Energy, the operator of the Sakhalin-2 project, will spend the most for their offshore fields Piltun-Astokhskoye and Lunskoye in the Sea of Okhotsk. The investments will amount to approximately $3 billion during the period from 2018 to 2021. Lukoil with its investments for the Caspian and Baltic projects estimated at more than $2.5 billion holds second place. The above two companies will account for about half of all investments in this segment in Russia. ExxonMobil, with more than $2 billion, comes third, followed by Rosneft and Gazprom, each of which will spend an estimated $1 billion.

The experts mention that Lukoil is starting new development phases of its Caspian and Baltic fields that are already in development — In particular, the Korchagin and Filanovsky fields. The company is also starting the development of the new Rakushechnoye field (located next to the Filanovsky field) in the Caspian Sea and the D-33 near the Kravtsovsky (D-6) in the Baltic Sea.

Rystad emphasizes the huge potential of the Russian offshore projects market. However, in addition to the sanctions imposed by the EU, the US and Norway, the matter is complicated by Russia’s high corruption rating — its position has moved from 119 to 131 in the Transparency International 2016 list on which a total of 178 countries are listed.

Source: https://neftrossii.ru/content/posle-shtilya-poputnyy-veter.


Translated by Aleksei Afonin, Russian Oil & Gas Translation Services.

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About Russian Oil & Gas Translation Services

A geophysicist by education, Aleksei Afonin has been working for 15 years as an offshore geophysical engineer, 14 years as a freelance technical translator, and 5 years as an SEO content writer. His experience as an engineer includes participation in large-scale hydrographic and seismic survey projects for oil and gas industry leaders such as Shell, British Petroleum, Chevron, Gazprom, etc. Geotechnical, geophysical, hydrographic/topographic surveys are his main areas of expertise in translation and writing. Owner of Russian Oil & Gas Translation Services (Reg. No. 316645100111016).
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