London — Global oil and gas sector spending is expected to grow modestly for a second year in 2018 helped by an ongoing shift to short-cycle, quick-return projects which are underpinning the resurgence of US shale, the International Energy Agency said Tuesday.
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Following a decline of more than 40% between 2014 and 2016, global upstream investment rebounded modestly in 2017 by 4% to $450 billion in nominal terms and is set to increase by 5% to $472 billion in 2018, the IEA said in its latest annual World Energy Investment report.
The emphasis on shorter-cycle projects to maximize earnings during the oil price downturn has led to a shift in investment away from offshore and new conventional oil, the IEA said. Companies are now pumping more investment into producing assets and many have expanded their operations in the US shale industry.
Capital spending in US shale sector has boomed since the end of 2016 and is estimated to increase by around 20% in 2018 following a 60% jump in 2017, the IEA said.
Although US shale sector costs are creeping up, substantial efficiency gains and higher well productivity mean the industry almost halved its breakeven price between 2010 and 2014, the IEA estimates. With the recent spending surge on US shale, shale production is projected to grow by a record 1.3 million b/d this year to over 5.7 million b/d and producers should collectively turn a profit for the first time.
"The United States shale industry is at a turning point after a long period of operating on a fragile financial basis," IEA executive director Fatih Birol said in a statement. "The industry appears on track to achieve positive free cash flow for the first time ever this year, turning into a more mature and financially solid industry while production is growing at its fastest pace ever."
Looking ahead, however, the IEA cautioned that the continued ability of shale producers to offset inflationary pressures with improved productivity remains "very uncertain."
But the growth of the US shale industry contrasts with the rest of the oi oil and gas sector, IEA said.
Investment in new conventional capacity is set to plunge in 2018 to about one-third of the total, a multi-year low "raising concerns about the long-term adequacy of supply", the IEA said.
The shift to focus on short-cycle and producing assets also means spending on exploration has suffered, the IEA concludes.
Globally, spending on exploration is set to total $51 billion this year, the IEA said, down 6% from 2017 and the lowest share ever of global upstream spending.
The report also projects that average unit costs of upstream exploration and development worldwide will increase by around 3% in 2018, whereas shale costs are set to increase on average by 11% in 2018, following a 9% increase in 2017.
Globally, the IEA said the share of national oil companies in total oil and gas upstream investment remained near record highs last year, a trend expected to continue in 2018.
NOC's share in total upstream spending is projected to remain at an all-time high of 44% of global upstream investment in 2018 for the third consecutive record year, it said.
The growth of NOC spending is particularly apparent in China where state-run PetroChina, CNOOC, and Sinopec are planning double-digit growth in spending in 2018. The IEA estimated that, as a group, Chinese NOC spending is set to rise by 24%, though it will remain far below the level reached four years ago.
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