Upstream O&G Spending in 2012 to Reach Nearly $1.3T

Global upstream capital and operating expenditures (CAPEX and OPEX) are set to reach a combined record of $1.23 trillion for 2012 and expected to rise to $1.64 trillion in 2016, according the latest IHS Upstream Spending Report. CAPEX on new projects and OPEX on existing plays are expected to reach new records of $728 billion and $500 billion in 2012, respectively.

The quarterly IHS Upstream Spending Report tracks historical spending and builds out future spending projections based on detailed analysis of the construction timing for hundreds of major projects across the globe. The analysis forecasts spending over a five year period and is split by onshore and offshore, region, and by business segment to provide an overview of spending patterns and key trends across the global oil and gas industry.

Spending increases are projected for each region of the globe, according to the report, reflecting a large increase in activity across the oil and gas industry as sustained high oil prices (and gas prices outside of North America) remain well above breakeven levels for most proposed oil and gas projects. At the same time tighter markets are leading to high project cost inflation worldwide.

"The brief lull in expenditures in 2009 and 2010 caused by the Great Recession is behind us. Robust oil prices and the growth of North American unconventional gas—which already accounts for $128 billion in 2012 spending—will create new high water marks for investment in CAPEX and OPEX that surpass pre-recession highs," said David Hobbs, IHS Chief Energy Strategist. "Understanding where spending is headed will be critical for both buyers and sellers in the supply chain to meet market needs."

North America leads all regions with total upstream spending (CAPEX and OPEX) of $392 billion in 2012. CAPEX is expected to reach $274 billion in 2012, driven by the region’s boom in unconventional production including oil sands, tight oil, shale gas, tight gas and coal bed methane, which are forecast to account for $128 billion of the 2012 total. Driven by continued investment in unconventional resources, total North America spending is expected to reach $528 billion in 2016.

The Asia-Pacific region follows North America with $238 billion in total 2012 upstream spending, comprised of $169 billion CAPEX and $69 billion OPEX. This total is expected to rise to $323 billion in 2016. While onshore projects are the primary driver for North American spending growth, the prominent source of the rise in Asia-Pacific spending is offshore. Asia-Pacific currently has the highest 2012 offshore spending of any region at $104 billion, of which $67 billion is CAPEX. The region will also be a key contributor to growth in global offshore CAPEX going forwards, driven by major offshore developments in the region, particularly offshore Australia. Offshore CAPEX for all regions is estimated to reach $213 billion in 2012, well above the 2008 peak, and are projected to reach $297 billion in 2016, of which the Asia-Pacific region will represent 31percent.

Additional Key Findings

Regional Findings:

• Middle East is expected to be one of the main growth regions in terms of total spending going forwards, with CAPEX rising by nearly 80 percent from 2011 to 2016 driven by increased drilling activities in Saudi Arabia and particularly Iraq. This compares to a global CAPEX increase of 45percent globally over this time period.
• Africa spending to be driven by growth in offshore activity going forward, up 62 percent from 2011 through 2016, linked to both ongoing developments and upcoming developments in new oil and gas producing countries such as recent discoveries in east Africa as well as the western Gulf of Guinea.
• Total European CAPEX to rise from $45 billion in 2011 to $57 billion in 2016, largely attributable to recent discoveries offshore Norway entering development stage and as regional pipeline projects are completed
• Latin America, with total spending of nearly $230 billion, is to be second largest offshore region after Asia-Pacific in terms of upstream CAPEX through the 2012-2016 forecast period, led by field development and exploration spending in offshore Brazil, with a growing share of spending going to pre-salt field development.

Onshore and Offshore Findings:

• Onshore continues to command the largest share of CAPEX, but in terms of growth, offshore CAPEX will continue to outpace onshore CAPEX going forwards, rising a total of 58 percent from 2011 through 2016, compared to a 39 percent rise onshore.
• Total OPEX to reach $671 billion in 2016, as new fields are brought online and due to rising global costs per unit of oil/gas produced.

Business Segment Findings:

• Total spending for offshore pipelines will recover to 2008 levels in 2012, at $12 billion, following the trough in 2010 that occurred due to a combination of the Macondo disaster and the effects of 2008-2009’s economic downturn leading to delays.
• LNG will be the fastest growing sub-segment for engineering services with a growth of 183 percent from 2011-2016, driven by investments in Asia-Pacific and North America.
• Total oil and gas industry equipment CAPEX is to reach $50 billion in 2012, with nearly half linked to rotating equipment demand.
• Capital spending in the oil sands market segment is predicted to increase by 28 percent in 2012 to $18.5 billion and further to $28 billion by 2016 as high oil prices incentivise expansions.

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