(EnergyAsia, July 1, Wednesday) — The world’s largest national oil companies (NOCs) and super majors are planning to invest more than US$375 billion despite concerns over weak oil demand, said consultant Ernst & Young.
In a report, Investing for the upturn, Ernst & Young found that the largest NOCs will invest over US$275 billion to develop their businesses at home and abroad in 2009, with almost 70% of total investment coming from NOCs in Asia and South America. The super majors are expected to invest around US$100 billion.
The report found that by 2015, the largest NOCs will have invested around US$600 billion in the hydrocarbon sector.
Andy Brogan, global oil and gas transaction advisory services leader at Ernst & Young and author of the report, said:
“NOCs and the super majors continue to show a real determination to push ahead with their major capital expenditure plans this year, at least for now. 2008 was a record year for capital investment by the sector and 2009 is shaping up to be another record year. Companies are wary of finding themselves in a position where they have to play catch-up on investment when the upturn materialises.”
Despite the International Energy Agency’s (IEA) expectation for oil demand to remain weak, Mr Brogan said the industry would still need to invest in boosting production capacity to offset falling output caused by natural field depletion.
“Most oil and gas companies have indicated that they will spend more than half of their capital investment on upstream operations,” he said.
The economic slowdown, the sharp fall in oil prices and investors’ flight from risk have left many reserve rich state-owned oil and gas companies struggling to finance projects. Some NOCs are looking at cost-cutting measures while countries such as Indonesia are introducing stimulus packages to aid the sector.
Many reserve holders’ ambitions to expand overseas are also being scaled back in favour of domestic projects.
However, the report found that substantial financial commitments are still being made for oil and gas projects in China and Brazil.
Brazil is set to become a major producer following pre-salt discoveries by state Petrobras, which plans to invest US$28 billion in pre-salt areas as part of its US$174billion business plan to 2013 – around 90% of its total investment will be targeted at domestic projects.
The investment allocated by Petrobras for 2009 represents 38% of the planned US$91billion expenditure by South American NOCs this year, according to the report, with Asian NOCs collectively to invest more than US$98 billion, almost half (US$42 billion) of which has been allocated by China’s CNPC.
By comparison the capital expenditure of NOCs in Africa, CIS and the Middle East is a fraction of that of their Asian and South American counterparts. The report calculated that the NOCs of Africa announced US$21 billion of investment this year compared to US$36 billion for the CIS and US$29 billion for the Middle East.
It is these regions that face potential budget shortfalls which could lead them to seek out foreign investment in order to maintain or boost their oil production levels.
“When the NOCs had easy access to capital they were in a position to dictate terms with their IOC partners, but the volatility in financial markets means that IOCs with sufficient liquidity will be able to offer potential partners not only technological and operational expertise but also access to much needed capital,” said Mr Brogan.
“In the long-term, the overall structural issues surrounding location of reserves and achievable levels of production have not changed. When the global economy recovers the same pressures evident last year will resume. Any renewed appetite from NOCs for IOC participation will be short-lived – and therefore opportunities available now should not be wasted.”